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Oil prices drop as Middle East tension ease
[SINGAPORE] Oil prices extended declines on Wednesday as Middle East tension eased after Saudi Arabia ended a military campaign in Yemen, while industry data showed that a larger-than-expected build in US oil inventories.
Saudi Arabia announced on Tuesday it was ending a month-long campaign of air strikes against the Houthi rebels who seized large areas of Yemen, easing geopolitical tension in the key oil producing region.
Oil prices have risen nearly $10 a barrel so far this month, on tension in the Middle East and concerns over slowing output growth in the United States.
Prices could weaken again but they are unlikely to plumb new depths this year, leading commodity traders said on Tuesday, citing strengthening demand. "We will probably see one more dip in the second quarter but prices probably won't go below this year's lows," Ian Taylor, head of the world's largest oil trader, Vitol, said.
Brent crude for June delivery was down 28 cents at US$61.82 a barrel by 0142 GMT, after settling US$1.27 lower.
US crude for June delivery was 38 cents lower at US$56.22 a barrel. The May contract, which expired on Tuesday, ended down US$1.12. "Short-term momentum is starting to swing against commodities," analysts at ANZ said in a note, noting that Brent has failed to hold and retreated from key levels around US$62-$63 a barrel in recent days.
US crude oil storage has reached the highest levels since 2011, with tanks in the Cushing, Oklahoma hub running nearly 80 per cent full, according to energy markets intelligence firm Genscape.
A Reuters survey showed US crude inventories likely rose for the 15th straight week, adding nearly 3 million barrels last week, less than a reading by industry group American Petroleum Institute showing a stock build of 5.5 million barrels.
Official stockpile data will be issued by the government's Energy Information Administration at 1430 GMT on Wednesday.
While futures prices have been mostly driven by supply issues in recent months, Vitol's Taylor said demand is strong and should provide support to oil prices. "Gasoline is coming back with a vengeance. Refining margins are not as bad as we had feared," he said. Growth in demand outside the United States was impressive in India, South Africa and even Europe, he added.