The past few days have been hectic for global oil markets, with new developments taking place almost every day.
While yesterday’s news that a major Russian pipeline had been shut down helped stir oil prices upward, that was all for naught as Thursday saw crude prices plunge in what was the worst trading day of the year for oil.
Futures contracts of light, sweet crude for July delivery fell by a whopping 5.7 percent today, settling below $60 at $57.91 per barrel. Prices for Brent crude, the global benchmark for oil, fell by slightly less, down 4.6 percent to $67.76 per barrel.
This marked the biggest percentage loss for oil since December 24th, 2018. In terms of the price itself, the last time oil prices dipped this law was back on March 12th.
While there are many factors constantly in play when it comes to the global oil market, with some mattering more on some days than others, the biggest reason why today’s prices tanked came back to the U.S.-China trade issues.
Nor was it just oil that plunged, as the Dow Jones Industrial Average fell over 400 points after one Chinese official said that the U.S. would do well to “adjust it’s wrong actions” if it wanted to continue the negotiations.
Gao Feng, the spokesperson at the Chinese Ministry of Commerce, warned that talks could come to an end, especially since President Trump blacklisted Chinese telecom giant Huawei from selling to American companies. Other indexes, such as the S&P 500 as well as the NASDAQ, fell 1.7 percent and 2.1 percent respectively, while Treasury yields dropped to an 18-month low.
According to data from last week providing by the Commodity Futures Trading Commission, bullish bets on crude oil outnumbered bearish bets by almost 259,000 contracts, a decline from the previous week which has around 272,000.
While it’s clear that bullish pressures on the oil markets are declining, there are a number of conflicting factors at play.
For one, the U.S. Energy Information Administration reported on Wednesday that U.S. oil inventories increase by 4.7 million barrels last week, higher than what analysts expected. Gasoline stockpiles also rose by 3.7 million barrels, while supplies of distillate increased by an extra 800,000 barrels.
Increasing U.S. supplies have been exerting a constant downward pressure on prices, but Wednesday’s news from the EIA helped push prices down further then overwise expected.
“We’ve got a little bit of a hangover from yesterday,” said Bob Yawger, director of oil futures at Mizuho Securities USA. “Heading into Memorial Day weekend and you have a gasoline build, that’s kind of a worst possible scenario here for the energy patch.”
While prices have risen over the past couple of weeks backed by tensions in the Persian Gulf alongside supply risks due to Russian pipeline outages, it wasn’t enough to mitigate Thursday drop in price.
This is happening even amongst continuing production-cuts from OPEC countries, which has helped oil prices recover since December 2018.
Although many experts figured that oil prices could shoot up into the mid-80s, it’s days like today that illustrate how volatile and unpredictable global commodity markets can be.