By Barani Krishnan
Investing.com - The bad news has gotten badder for oil with the first stockpile build for U.S. crude in eight weeks, while global benchmark Brent slipped deeper into bear-market territory.
New York-traded West Texas Intermediate crude settled down $2.54, or 4.7%, at $51.09 per barrel. WTI has slid for a third day in a row and is down about 8% on the week and 13% on the month.
London-traded Brent crude, the benchmark for oil outside of the U.S., tumbled $2.71, or 4.6%, to close at $56.23, remaining under the key $60 per barrel.
Both WTI and Brent have fallen over 20% since late April, befitting a bear market.
For the year, WTI remains up about 12% while Brent is now up less than 5%. In April, Brent was up as much as 38% on the year.
Sentiment in oil has made a 180-degree turn in just a week since Federal Chairman Jay Powell indicated the central bank was done cutting rates for now, after announcing a modest 25 basis point-reduction on July 31, versus market expectations for a deeper and more prolonged cut.
In recent days, President Donald Trump’s threat to levy a 10% tariff on hitherto untaxed Chinese imports resulted in Beijing’s devaluation of the yuan, further upsetting the United States which has long complained about China’s trade practices. Washington late on Tuesday labeled China a currency manipulator.
On Wednesday, the U.S. Energy Information Administration said in its weekly oil inventory dataset that crude stockpiles rose by 2.39 million barrels in the week to August 2.
Analysts had expected a stockpile draw of 2.85 million barrels, after a decline of 8.5 million barrels in the previous week. Crude stocks had, in fact, fallen by nearly 50 million barrels in eight previous weeks, helping shore up oil prices.
“The first build to oil inventories in eight weeks puts further downward pressure on prices amid an already strong sell-off,” said Matthew Smith, who, as commodities director, tracks crude cargoes for New York-based Clipperdata.
Smith said that despite a massive jump in refining activity of nearly 800,000 barrels per day last week that lifted refinery runs to their highest point of the year, crude balances still due to solidly higher imports.
The EIA also reported that gasoline inventories unexpectedly surged by 4.44 million barrels, compared to expectations for a draw of 0.72 million barrels, while distillate stockpiles increased by 1.53 million barrels, compared to forecasts for a gain of 0.48 million.
“The big jump in refinery runs - to the highest point since the last week of 2018 - has not surprisingly translated into (offsetting) builds across the products, further greasing the wheels for today's selloff,” Smith added.
Tariq Zahir, managing member at oil-focused fund Tyche Capital Advisors in New York, noted that investors have started plowing money into bond markets, buying bonds resulting in lower yields – a move that has started showing a risk-off trade as gold breaks to the upside.
Gold futures hit highs above $1,500 for the first time in six years on Wednesday, reacting to the yuan’s devaluation and the intensifying U.S.-China trade war.
“All of these (are) weighing on the energy sector itself, whether it is a risk off posture being taken or possible further slowdown in U.S. and worldwide economies,” Zahir said.
“At this time of year, we normally see draws across the board,” he added. “We do feel prices will be pressured in the days and weeks to come.”