Investing.com -- Crude futures plunged to near two-month lows on Thursday, after a lower than expected U.S. inventory draw last week provided a stark reminder that the conclusion of a prolonged downturn in oil prices is nowhere in sight.
On the New York Mercantile Exchange, WTI crude for August delivery traded between $44.88 and $48.25 a barrel before closing at $45.17, down 2.27 or 4.79% on the session. At session-lows, the front month contract for U.S. crude futures dipped below $45 a barrel for the first time since May 11. On the Intercontinental Exchange (ICE), brent crude for September delivery wavered between $46.16 and $49.59 a barrel, before settling at $46.45, down 2.35 or 4.82%. During a volatile day of trading, marked by extreme fluctuations, crude futures moved by as much as 7% on the session.
On Thursday morning, the U.S. Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that U.S. commercial crude oil inventories decreased by 2.23 million barrels for the week ending on July 1. While the draw was in line with expectations for a decline of 2.25 million barrels, analysts expected a considerably higher reduction following estimates of a 6.7 million barrel draw-down a day earlier from the American Petroleum Institute. With the sharp declines, API reported its seventh consecutive weekly draw and largest in 13 months.
Both reports were released one day later than usual this week due to the Fourth of July holiday.
At 524.4 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. For the week, total motor gasoline inventories decreased by 0.1 million barrels, while distillate fuel inventories declined by 1.6 million barrels. Meanwhile, production plummeted by 192,000 or 2.25% last week to 9.428 million barrels per day, suffering its largest weekly decline since September, 2013. It came amid a 31.5% drop in weekly production in Alaska, along with a 0.5% decrease in the lower 48 states.
Over the last six months, U.S. crude output has moved lower in 23 of the last 24 weeks to fall to its lowest level since May, 2014. By comparison, weekly output in the U.S. eclipsed 9.4 million bpd 13 months ago, hitting its highest level in 44 years.
While U.S. output continues to fall at a rapid pace, OPEC production remains near all-time highs. Earlier this week, a Bloomberg survey showed that OPEC production increased by 240,000 bpd in June to 32.88 million bpd. For the month, production in Saudi Arabia surged 70,000 bpd to 10.33 million bpd, lingering near its highest level on record.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 0.20% to an intraday high of 96.35. Although the index is up by more than 2.5% since the Brexit referendum, it is still down by approximately 4% from its December highs.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.
Crude futures have fallen by more than 50% since hitting a peak at $115 a barrel in June, 2014.