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US Crude Plunges 4% as Supplies Unexpectedly Spike

June 7, 2017 at 16:55 by Andrew Moran

Oil prices have cratered to their lowest levels in more than a month on Wednesday after new data highlighted that US crude stockpiles unexpectedly surged for the first time in nine weeks. Oil futures plunged even further as traders fear US crude production could hit a record high next year.

July West Texas Intermediate (WTI) futures tumbled $4.38, or 2.11%, to $46.08 per barrel at 16:37 GMT on Wednesday on the New York Mercantile Exchange. Oil futures had pared some of their losses, but they are still trading at one-month lows.

Brent, the international benchmark for oil prices, is also dropping midweek. August Brent crude futures dipped $1.76, or 3.51%, to $48.36 a barrel on London’s ICE Futures exchange. Brent is also hovering at a one-month low.

According to the US Energy Information Administration (EIA), US crude supplies spiked by 3.3 million barrels for the week ending June 2. Analysts did not expect this as domestic crude supplies had declined for eight straight weeks. The EIA further reported that gasoline stockpiles climbed by 3.3 million barrels and distillate stockpiles jumped by 4.4 million barrels.

This comes as the EIA published a report on Tuesday that forecast US crude production to average 10 million barrels per day (bpd) in 2018. The EIA originally pegged the number at 9.6 million bpd next year.

Experts, the EIA says, will now focus primarily on inventories since supply and demand are balanced.

Higher domestic production could start to heavily weigh on prices. Even as the Organization of the Petroleum Exporting Countries (OPEC) extends its output freeze of 1.8 million bpd by an additional nine months, US crude levels are offsetting the cartel’s efforts. This is part of the reason why investors had wanted OPEC to increase its cuts to help ease the international glut.

With US firms continuing to take advantage of higher prices, the country could eventually surpass Saudi Arabia as the second-largest producer of oil. As President Donald Trump takes the US out of the Paris Agreement and removes restrictions in the energy market, output could ramp up at a faster pace. The shale revolution has certainly revamped the energy market.

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