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Oil Continues Plunge As Crude Inventories Slip 1.4 Million Barrels

August 8, 2018 at 16:09 by Andrew Moran

Oil futures plunged more than 3% midweek after the US government reported a smaller-than-expected decline in domestic crude inventories. The global trade war did not help oil’s performance on Wednesday, but it did find support from President Donald Trump’s recent sanctions on energy-rich Iran.

September West Texas Intermediate (WTI) crude oil futures cratered $2.08, or 3.01%, to $67.09 per barrel at 15:37 GMT on Wednesday on the New York Mercantile Exchange. Despite the impressive start to 2018, crude prices have fallen close to 5% over the last three months.

Brent, the international benchmark for oil prices, is also tumbling in the middle of the trading week. October Brent crude futures plummeted $2.13, or 2.85%, to $72.51 a barrel on London’s ICE Futures exchange. Like WTI futures, Brent prices have dipped 4.3% since May.

According to the US Energy Information Administration (EIA), domestic crude stockpiles decreased 1.351 million barrels for the week ending August, which is lower than the market forecast of 2.3 million barrels. US oil production levels dropped to 10.69 million barrels per day (bpd). Gasoline inventories climbed by 2.9 million barrels for the week, while distillate supplies tacked on 1.2 million barrels.

Crude has been impacted by China’s sluggish economy. Chinese oil imports totaled 36.02 million tonnes in July, or 8.48 million bpd, which is higher than June’s 8.36 million bpd and July 2017’s 8.18 million bpd. Though the figures are higher than the previous two months, July imports remained the third-lowest so far in 2018.

Oil markets also paid attention to the world’s second-largest economy slapping 25% tariffs on $16 worth of US goods. The trade spat has rattled global financial markets, leading analysts to worry that the trade levies by seep into the rest of the economy and cause a slowdown.

Traders may look to the US government’s renewed sanctions on Tehran, one of the world’s largest producers of oil, for short-term direction. As part of the new sanctions, Iran will be banned from using US dollar, trading in precious metals, and buying US and European aircraft. The first round of sanctions went into immediate effect, and additional sanctions are scheduled for the next 90 days. The sanctions might lead to several situations: a domestic economic contraction, a slowdown in crude output, and geopolitical conflict.

In recent weeks, President Trump has gone from threatening the Iranian government on Twitter to saying he would be open to meeting with the nation’s leadership without any preconditions to imposing new sanctions.

In other energy markets, September natural gas futures surged $0.05, or 1.8%, to $2.74 per million British thermal units (btu). September gasoline futures cratered $0.09, or 4.23%, to $2.015 a gallon. September heating oil futures shed $0.061, or 2.83%, to $2.107 per gallon.

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