Oil prices dip as focus returns to global supply overhang

Oil prices dipped on Thursday, extending the previous day’s decline, as the market focus returned to a global supply overhang, although a surprise fall in Chinese crude inventories did lend some support.

International benchmark Brent crude oil futures LCOc1 were trading down 10 cents at $48.85 per barrel at 0709 GMT, having closed down 1.8 percent the previous day.

U.S. West Texas Intermediate (WTI) crude futures were at $46.73 a barrel, down 4 cents, after dropping 2.8 percent on Wednesday.

Traders said that a surprise decline in Chinese crude stocks in July, which fell 5.7 percent from June, to 28.9 million tonnes (around 212 million barrels) and their lowest level since April 2013, lent an otherwise weak market some support.

Prices earlier this week pared a rally that pushed crude up by more than 20 percent in August on talk of a potential deal by oil producers to freeze output.

Hopes of a deal were dampened by record output from the Organization of the Petroleum Exporting Countries (OPEC) and little prospect of voluntary restrictions.

“We do not expect a production freeze – let alone a production cut – from the OPEC meeting,” U.S. investment bank Jefferies said on Thursday, adding that even if a freeze was agreed, “the effects on the physical market would appear to be minimal.”

With output high, not just from OPEC but also other top producers like Russia, and the demand outlook shaky, analysts said there was little prospect of an end to the glut, which has pulled down crude prices from over $100 a barrel in 2014 to their current sub-$50 levels.

High storage levels are also weighing on the markets.

In the United States, commercial crude oil stocks rose by 2.5 million barrels to 523.6 million barrels C-STK-T-EIA, or 16 percent higher than a year ago. [EIA/S]

In refined products, stocks around the world are also brimming as demand slows while refinery output remains high.

“Ample inventories were due to weaker demand in Asia, but more generally were driven by excess supply generated by refiners maximizing runs, notably to produce gasoline in the U.S.,” BNP Paribas said.

China’s implied oil demand fell 0.3 percent from a year earlier to 10.58 million barrels per day (bpd) in July, according to Reuters calculations using official data.

Source: Reuters