Crude oil was crushed overnight, falling to a fresh six-year low.
Aside from being priced in US dollars, something that has appreciated by close to 20% in the past year according to the USD index, the chart below goes someway to explaining why it remains under the kosh – the huge buildup in US inventories. Supplied by CBA commodity researchers Vivek Dhar and Kofi Mensa, it shows the current day supply of US crude inventories compared to levels in previous years.
Clearly, compared to historic norms, inventories are far higher this year. Dhar and Mensa note there is currently more than four days’ supply above the six-year average seen for this time of year, partially due to inventories last week registering their largest weekly increase since April 2014.
While front-month crude futures have fallen by more than 57% over the past 12 months – something that will inevitably lead some to conclude a corrective bounce is a near-formality, if that does eventuate, Dhar and Mensa believe prices will be capped at the $50/bbl level over the short-term.
In the interim, the pair believe economic stability concerns in China and increasing crude oil output from OPEC nations will likely weigh on crude oil prices in the near term.
This morning front-month WTI futures currently trade at $40.66/bbl.