Crude Oil Prices Plummet to 9-Week Low Amid High Inventories and Weak Demand

Strategic Insights -

Crude oil prices fell to a nine-week low on Thursday, battered by high U.S. oil inventories and weak demand. The decline was the largest since July 29, with the November delivery contract on the New York Mercantile Exchange (Nymex) settling at $65.89 a barrel, down 4.5% or $3.62. This sharp drop followed a nearly 4% decline on Wednesday in response to a sharp rise in stockpiles and declining consumption. The weak U.S. economy, with unemployment at 9.7% in August, is keeping demand down, particularly for gasoline, the most widely used petroleum product.

Key Takeaways:

  • Crude oil prices fell to a 9-week low, with the November delivery contract on Nymex settling at $65.89 a barrel, down 4.5% or $3.62.
  • The decline was the largest since July 29, with prices at the lowest level since July 14.
  • High U.S. oil inventories and weak demand contributed to the price drop, with refineries trimming operations due to low margins.
  • The weak U.S. economy, with unemployment at 9.7% in August, is keeping demand down, particularly for gasoline.
  • Gasoline demand in the week ended September 18 was the lowest since January, according to the Energy Information Administration.
  • Stocks of distillate fuel (diesel/heating oil) are at their highest level since January 1983, ahead of winter.
  • The stronger dollar and weakness in equities also spurred selling in oil futures, as traders viewed gains in stock prices as validation of economic recovery, which would lift oil demand.

Statistics:

  • Crude oil prices dropped $6.41 a barrel in two days.
  • The November delivery contract on Nymex settled down 4.5%, or $3.62 a barrel, at $65.89 a barrel.
  • The price drop was the largest since July 29, with prices at the lowest level since July 14.
  • Unemployment in August was at 9.7%, the highest level since June 1983.
  • Gasoline demand in the week ended September 18 was the lowest since January.
  • Stocks of distillate fuel (diesel/heating oil) are at their highest level since January 1983.

Sources:

  • Dow Jones Commodities News via Comtex
  • Dow Jones Newswires (David Bird)
  • Energy Information Administration (EIA)