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Oil price nearing a six-year low as US crude stocks swell

Crude prices have been dented as stocks remain high in North America

Oil prices have pulled back following early February gains and an unprecedented glut of crude stocks in the US signals further weakness for crude prices, already near a six-year low.

Stockpiles at Cushing, Oklahoma, the delivery point for West Texas Intermediate (WTI) crude, hit a record 54.4 million barrels by mid-March. Nationwide stockpiles are the highest since 1931 at 468m barrels as the shale boom pushed US output to its highest level in three decades at 9.42m barrels per day (b/d).

WTI was trading at just under $44 a barrel (/b) – its weakest level since early 2009 - as Petroleum Economist went to press, while Brent traded around $55/b,  up roughly 20% from a six-year low in January.

The International Energy Agency (IEA) said in its latest market report that the oil price appears to be stabilising, but added that behind that façade, the rebalancing triggered by the price collapse has yet to run its course.

Despite steep drops in the US rig count – drillers have idled 709 rigs since the start of December and cut the number of active ones to the lowest since March 2011 – US supply shows little sign of slowing down. In fact, the IEA has raised its projections. Total 2015 US output is expected to average 12.6m b/d, up more than 760,000 b/d year-on-year.

Plunging US crude throughputs – due to seasonal and unplanned refinery outages, as well as weak margins and high gasoline stock builds in December – have seen US crude inventories soar, compounding the effects of robust supply growth. Stocks may soon test storage capacity limits, which would trigger renewed price weakness, but could in turn lead to the supply cuts that have so far remained elusive, warned the IEA.

At the same time, supply disruption risks are on the rise. Producer countries that depend on high oil prices and do not enjoy big buffers will find it tricky to balance their budgets and fund social spending programmes at current prices. Not a recipe for social stability, while disruptions continue in Iraq and Libya amid the political turmoil.

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