The crude oil price was smoked overnight, tumbling another 2.3% in overnight trade on the New York Mercantile Exchange (Nymex), leaving the decline so far this week at 4.3%.
After rebounding in the wake of the Federal Reserve’s decision to leave interest rates unchanged at its September meeting, something that saw the US dollar weaken as a consequence, the crude price has now fallen over 11% from its early October high.
While the US dollar strengthened overnight, something that would normally place pressure on the USD-denominated crude price, it was news that US crude inventories jumped by over 8 million barrels last week according to the US EIA, more than double the increase expected by financial markets.
As the chart from Vivek Dhar and Kofi Mensa, commodity researchers at the CBA shows below, the increase took US crude inventories to unprecedented levels for this time of year.
Currently they sit at 376.6 million barrels, nearly 31 days of supply at the current rate of usage. Compared to recent history, this is incredibly elevated – nearly 7 days more than the historic average seen in the period between 2009 to 2014.
“US crude oil inventories remain at levels not seen for this time of the year in at least the last 80 years,” wrote Dhar and Mensa in a note this morning.
“For now, economic stability concerns in China and increasing crude oil output from OPEC nations will likely weigh on crude oil prices in the near term.”
Clearly, increased supply coupled with tepid demand is creating supply gluts in commodity markets, leading prices ever lower.
While falling commodity prices may see some high-cost producers cease production, its clear that there are plenty of low-cost producers willing to accelerate their production to take their place.
No wonder prices remain under pressure, and why so many traders see the crude market, like many other key commodity markets, as a sell-on-rallies prospect at present.