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Oil prices slid on Wednesday after data showed US crude stockpiles ballooned last week and Saudi Arabia announced production reached a record high in March.
The US benchmark Nymex May West Texas Intermediate dropped $2.97 a barrel to $51.01 in late afternoon trading, while the international marker ICE May Brent fell $2.55 a barrel to $56.53 a barrel.
US crude stocks recorded their biggest gain in 14 years surging by 10.9m barrels, according to the US Energy Information Administration. Analysts’ surveyed by Reuters had expected an increase of 3.4m barrels.
Behind the increase was a rise in imports of 869,000 barrels a day. Gasoline stocks recorded an unexpected pick-up of 817,000, even as analysts forecast a drop of 1m barrels.
Crude stocks at the important Cushing, Oklahoma delivery hub, where WTI is priced, rose by 1.232m barrel. This was also greater than analysts had estimated.
The numbers follow American Petroleum Institute data on Tuesday which showed inventories surged by 12.2m barrels in the week to April 3. The data far surpassed market projections for a 3.3m barrel build in the latest week.
Meanwhile, in earlier Wednesday trading, oil had reacted to comments late on Tuesday by Saudi Arabia’s veteran oil minister, who said the country’s output had climbed to a record 10.3m barrels a day in March. The Kingdom’s previous record peak was 10.2m b/d in August 2013.
Although Ali Al Naimi did not give any explanation as to why output has jumped, oil market experts have said a combination of factors were behind the increase in production and drilling of late.
Some are short-term considerations and others longer-term strategic plays. Better refining margins have prompted European buyers to take more Saudi crude, while attractive price differentials have encouraged more purchases from Asia and the US, analysts have said.
The kingdom also raises output ahead of the summer months when the country burns more oil to keep cool as air conditioning usage rises. In addition, domestic demand has been rising as Saudi refining capacity has grown.
Some observers add that the country is using its hefty balance sheet to take advantage of lower drilling costs even as crude prices have fallen. But the kingdom could also be drilling more to maintain, or even build on, its spare capacity — the volume of production that can be brought within a month and sustained for at least 90 days.
Mr Naimi said the kingdom’s production was likely to continue at around 10m b/d. Amrita Sen at consultancy Energy Aspects said this level is “becoming the new norm” for Saudi Arabia.
The increase in output — rather than cutting production alone to sustain prices — reaffirms the country’s vow not to cede market share to rival producers, from the US to Russia.
“The kingdom remains willing to participate in restoring market stability and improving prices in a reasonable and acceptable manner,” said Mr Naimi in a speech in Riyadh. But it will only do so in co-ordination with major oil-producing countries inside and outside Opec, he said.
“The burden cannot be borne by the [Kingdom of] Saudi Arabia, the GCC countries, or Opec countries, alone,” Mr Naimi added.
Olivier Jakob, oil analyst at Petromatrix, also notes the Iran factor. Gulf countries are likely to boost output and “go for as much market share as possible” before Iranian exports increase after any lifting of sanctions.