Oil Prices Stumble on Fears of Falling Demand -- 2nd Update
By David Hodari and Ira Iosebashvili
Oil prices dropped sharply Wednesday as data showing inventories rose last week reinforced concerns over slowing global demand.
West Texas Intermediate futures fell 4% to $51.14 a barrel on the New York Mercantile Exchange, the lowest settlement level since January. Brent crude, the global benchmark, was down 3.7% at $59.97 a barrel on London's ICE Futures exchange, a 19-week low.
U.S. crude-oil stockpiles rose by 2.2 million barrels last week, data from the U.S. Energy Information Administration showed Wednesday. Analysts and traders surveyed by The Wall Street Journal expected stockpiles to fall by 600,000 barrels. Prices were already lower before Wednesday's report and extended their losses into the close.
Worries over slowing global growth have weighed on crude prices in recent weeks, stoked by an escalated trade conflict between the U.S. and China that investors increasingly believe will hurt demand for oil and other raw materials.
Brent crude is down nearly 20% from its April high, putting it within striking distance of a bear market. WTI futures are down roughly 17% in the past month.
A drop by Brent below $60 a barrel puts the benchmark further below the level necessary to balance the national budgets in Saudi Arabia and other oil-producing nations. The drop in WTI prices, meanwhile, is likely to weigh on U.S. oil producers.
The S&P 500 energy sector has dropped 21% in the past 12 months. Shares of companies including Exxon Mobil Corp. and Diamondback Energy Inc. are down 10% or more in that span, compared to a modest rise for the broader S&P 500.
The EIA on Tuesday lowered its forecast for global oil demand growth in 2019 to 1.2 million barrels a day, a 14% downgrade from the prior month's projection, playing into persistent worries about the health of the global economy.
Weakening economic figures out of China have prompted its government to issue waves of stimulus measures, with the latest coming this week. Still, oil markets have shrugged off Beijing's attempts to support the economy.
"I'm puzzled the stimulus measures didn't cause the usual positive, and it's that growth pessimism that continues to pressure oil," said Norbert Rücker, head of commodities research at Julius Baer.
Sagging demand has prompted unseasonable builds in inventories. U.S. crude-oil inventories are about 8% above the five-year average for this time of year and stand at a nearly two-year high.
While steep declines have calmed in recent sessions, Wednesday's drop brought oil prices back to the bottom of their recent price range.
"Broadly, there are two issues that can stimulate demand," said Martijn Rats, global oil strategist and head of European oil & gas equity research at Morgan Stanley. "One is trade tensions resolving and one is further policy responses to a weakening global economy in the U.S. or China."
Oil prices could receive a further jolt in the coming weeks, with signals out of major producing nations becoming increasingly divergent ahead of a summit between the Organization of the Petroleum Exporting Countries and its allies due to take place in Vienna at the end of the month.
Comments from Saudi officials this week have suggested participants were close to agreement on extending the existing OPEC+ production cut, but remarks from Russian oil-market figures have contradicted that message.
With questions hanging over the date of the conference, "when they do have the meeting, we could see some pretty tough negotiations," said Warren Patterson, commodities strategist at ING. "The Rosneft CEO has suggested an extended cut would give more market share to the U.S. and a scenario when they don't extend cuts is not going to be pretty."
Meanwhile, gold for June delivery gained 0.4% to $1331.90 a troy ounce on Wednesday, as worries over global growth bolstered the case for the Federal Reserve to cut rates in coming months.
Some investors buy gold when risk aversion rises, believing it will better hold its value if markets turn rocky. Gold also struggles to compete with yield-bearing assets when rates rise, and tends to be buoyed by expectations of Fed easing.
In base metals, June copper fell 0.6% to $2.6590 a pound. Big swings in oil tend to sway copper prices, as some investors trade the two commodities as part of a single basket, with a bigger share devoted to oil.
Write to David Hodari at David.Hodari@dowjones.com and Ira Iosebashvili at email@example.com