US front month WTI crude futures were thumped on Thursday, tumbling by 4.8% to close at the lowest level seen since May 10.
At US$45.37 a barrel, it has now lost 12.2% since hitting a high of US$51.67 back on June 9 this year.
Though there have been many factors to explain the recent unwind — fears over the economic impact of the UK Brexit vote, rising US rig counts and concerns over the outlook for Chinese demand, just to name three — another explanation can be found in the chart below, supplied by the Commonwealth Bank.
US crude inventories are falling, but they have only fallen from very high levels to still very high levels, according to Vivek Dhar, a mining and energy commodities analyst at the bank.
“The fall in US crude oil inventories has led to optimism that oil markets are tightening. However, it should be noted that oil stocks usually fall during this time of the year,” notes Dhar.
“Crude oil inventories are still more than 7 days higher than the average from 2010 to 2015 for this week of the year. That difference is still strikingly close to the peak achieved earlier this year. Therefore, it is likely too premature to dismiss surplus risks in US oil markets.”
On Thursday the US Energy Information Administration (EIA) released US crude inventory data for the week ended July 1, with stockpiles falling by 2.2 million barrels. The figure was shy of forecasts for a larger draw of 2.5 million barrels, and well below the 6.7 million barrels figure reported by the American Petroleum Institute on Wednesday.
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