Oil tumbles over 5% to 2017 low as US petroleum supply surges

Oil prices have held solidly above US$50 a barrel throughout the first part of 2017, a move that has incentivized US shale producers begin to ramp production back up after a two-year slump in oil prices.
Oil prices have held solidly above US$50 a barrel throughout the first part of 2017, a move that has incentivized US shale producers begin to ramp production back up after a two-year slump in oil prices.PHOTO: REUTERS

NEW YORK (AFP) - Oil prices slumped to their lowest level of 2017 on Wednesday (March 8) following a bearish US supply report that also dented American petroleum-linked shares.

The US oil benchmark, West Texas Intermediate, slid more than five per cent to US$50.28 a barrel, its lowest price since December. International oil benchmark Brent also ended the day at a low for 2017.

The retreat in oil prices came on a choppy day for global stocks, with US equities finishing mostly lower, Asian markets mixed and European equities close to flat.

US stocks have been under pressure all week in a retreat seen as a consolidation after Wall Street set multiple records last week.

US investors also have questions about an expected Federal Reserve interest rate hike next week, and doubts about whether President Donald Trump can rapidly enact tax cuts and other key aspects of his agenda.

"With the Q4 2016 profit-reporting period behind us, investors are now focusing on the nation's capital for possible trend-altering events, and are unnerved by what they see," said Sam Stovall, chief investment strategist at CFRA.

Oil prices have held solidly above US$50 a barrel throughout the first part of 2017, a move that has incentivized US shale producers begin to ramp production back up after a two-year slump in oil prices.

But US Energy Department's inventory report on Wednesday showed a hefty increase of eight million barrels in petroleum stocks in the latest week, with higher domestic production and increased stockpiling at the closely-watched Cushing, Oklahoma trading hub.

"People are nervous because they don't understand where all this oil is coming from," said Phil Flynn of the Price Futures Group. "Is it US production, is it imports, is it because Opec is not joining in? Because of these fears people are getting out of the market."

The sharp drop in oil prices dented leading petroleum-linked stocks, pushing both the Dow and S&P 500 into negative territory. ExxonMobil and Chevron both shed almost two per cent and Halliburton tumbled 3.2 per cent.

The dollar pushed higher against the euro ahead of a European Central Bank meeting at which monetary policymakers are expected to resist calls to end a flood of cheap money.

The euro could get a bounce if the ECB hikes its economic forecasts, yet ECB chief "Mario Draghi will most likely talk down the currency and that could erase any earlier gains," predicted BK Asset Management managing director Kathy Lien.