Energy Department says crude inventories increased by nearly two million barrels last week
Oil prices (CL-FT71.70-0.27-0.38%) fell to near $71 (U.S.) a barrel Thursday as investors eyed rising U.S. crude inventories and signs of a weak economy.
By early afternoon in Europe, benchmark crude for September delivery was down 38 cents to $71.59 a barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, the contract gained 55 cents to settle at $71.97.
Crude has traded near $71 a barrel for the last couple days after shooting up from below $62 last week as investors try to gauge whether a weak U.S. economy justifies a further rally.
The Energy Department's Energy Information Administration on Wednesday said crude inventories increased by nearly two million barrels last week, adding to the five million barrels put into storage the previous week.
The Institute for Supply Management reported that the services sector contracted more sharply than expected in July. The ISM showed that retailers, financial services, transportation and health care sectors, which account for 80 per cent of U.S. economic activity, fell for a tenth straight month.
One interesting aspect in the markets at present is the $3.50 spread between the Nymex and Brent contracts. In London, Brent prices fell 20 cents to $75.31 a barrel on the ICE Futures exchange.
Olivier Jakob of Petromatrix in Switzerland noted that “technically, the oil markets are currently split in two.”
While the U.S. contract and gasoline futures were struggling to break through previous highs, the Brent contract and heating oil were maintaining a “very positive advancing momentum,” Mr. Jakob said.
“As long as equities continue to be supported (they are) and the Dollar Index to be pressured (it is) then we need to give more weight for the convergence to occur upwards towards Brent,” Mr. Jakob concluded.
The Schork Report edited by U.S. analyst and trader Stephen Schork reiterated the lack of input market fundamentals of supply and demand are having on prices.
“Supplies of crude oil are well above seasonal norms ... yet our friends, the speculators, still like owning Nymex crude oil, a lot of Nymex crude oil,” Schork said. “Therefore, once again high prices are becoming the justification for high prices.”
In other Nymex trading, gasoline for August delivery fell 0.07 cent to $2.0505 a gallon and heating oil dropped 0.19 cents to $1.9550. Natural gas for August delivery rose 0.1 cent to $4.043 per 1,000 cubic feet.
