Oil prices plunged $5 back below $50 a barrel on Wednesday, dragging most of the rest of the commodities sector lower, after the US government reported a hefty increase in crude oil and products inventories.
The surge in stocks was particularly large at the delivery point of the Nymex West Texas Intermediate futures oil contract in Cushing, Oklahoma, which helped to push the US benchmark lower versus the European benchmark Brent.
Crude oil inventories at Cushing surged 4.1m to 32.2m barrels, the highest level since at least April 2004, when the US Department of Energy started tracking supplies there.
The local supply, demand and inventories for oil in the Cushing area have a direct impact on the West Texas Intermediate oil price, often overshadowing global trends.
“The bearishness has nowhere to hide in this report,” said Jim Ritterbush, president of Chicago-based oil trading consultancy Ritterbush and Associates. “The crude build is heavily concentrated at Cushing.”
Nymex February West Texas Intermediate fell $5.95 to settle at $42.63 a barrel pressured by the surge in inventories. The contract for delivery in March traded at about $50 a barrel.
Crude oil inventories in the US as a whole rose 6.7m barrels to 325.4m, well above Wall Street’s forecast of a small increase of 0.9m.
ICE February Brent, considered by many people in the market as a more reliable indicator of the global market, fell $4.67 to $45.86 a barrel, while the contract for March traded above $51.
Oil products inventories, both petrol and middle distillates, such as heating oil, also increased far above Wall Street’s expectations, dragging prices lower.
Petrol inventories rose 3.3m to 211.4m barrels, above a forecast of 800,000 barrels. Nymex February RBOB gasoline dropped 7.2 cents to $1.1153 a gallon.
Middle distillates inventories increased 1.8m to 137.8m barrels, almost double the 1m increase anticipated by the market. Nymex February heating oil fell 4.1 cents to $1.5850 a gallon.
The drop in oil and products prices was exacerbated by gloomy economic news.
The US private sector shed 693,000 jobs in December, according to a closely watched survey of business employment published on Wednesday. The monthly ADP Employer Services survey, which tracks private non-farm payroll employment, was much worse than economists expected and a surprising increase from the 476,000 jobs lost in November.
Base metals fell across the board on concerns about demand, erasing some of Tuesday’s large gains. On the London Metal Exchange, copper for delivery in three months dropped 2.7 per cent to $3,360 a tonne while aluminium fell 1.85 per cent to $1,592 a tonne.
“Inventories continue to rise, while demand remains firmly in the doldrums,” said Michael Jansen, metals analyst at JPMorgan.
Gold prices traded slightly lower as the drop in oil prices further dismissed concerns about inflation. In London, spot bullion was quoted at $848.15 a troy ounce, down from $863.15 a troy ounce the previous day.
Agricultural commodities also fell, reversing some of the previous days’ strong gains, ahead of next week supply, demand and inventories report from the US department of agriculture.
CBOT March corn fell 9 cents to $4.18 ½ a bushel while CBOT March wheat dropped 16¼ to $6.27¼ a bushel.