Oil prices tank as oversupply worries dominate

A motorist filling up his vehicle at a petrol kiosk. (Photo: AFP/Federico Parra)

NEW YORK: Oil prices slumped on Tuesday (May 19) as resurgent worries about the global supply glut combined with a sharp dollar rally.

US benchmark West Texas Intermediate for delivery in June shed $2.25 to finish at $57.99 a barrel on the New York Mercantile Exchange. Brent North Sea crude for July, the European benchmark futures contract, closed at $64.02 a barrel in London trade, down $2.25 from Monday's settlement.

The dollar rose sharply against the euro for a second day after a European Central Bank official said the bank would ramp up its asset-purchase stimulus program in May and June to offset an expected market slowdown in the coming months.

A robust report on US housing construction also gave the greenback a lift, making dollar-priced crude oil more expensive for non-dollar buyers.

The fall in crude prices is "calling attention to the market's current degree of oversupply, with the Q2 global supply/demand surplus seen at 2.0 million barrels per day or more," said Tim Evans of Citi Futures.

Traders appeared to grow more pessimistic ahead of the weekly US petroleum inventories report, due Wednesday. The Department of Energy is expected to report US crude inventories fell by two million barrels in the week ending May 15, according to Bloomberg News. But stockpiles remain near their highest levels on record.

Gene McGillian of Tradition Energy noted that US inventories had fallen in the previous two weeks but "production levels, which I'd say are the more important thing, have come down a little but are still above 9.3 million barrels per day in the US."

Commerzbank analysts also said that the market was discounting the turmoil in Iraq, Syria and Yemen as a geopolitical threat to the oil market.

"Fears that the fighting in Iraq and Yemen could hamper the oil supply have clearly given way to a more sober appraisal, for the past twelve months have demonstrated that such concerns are exaggerated," they said in a research note. "In actual fact, the oil supply from the region has continued to grow."