US oil prices slipped away from three and a half year highs on Thursday as the United States, Russia, and Saudi Arabia continue their high outputs. However, unplanned supply disruptions elsewhere and record demand caused a bigger decline.
US West Texas Intermediate crude futures were at $72.42 per barrel, 34 cents down, or 0.5 percent lower from the last settlement. WTI reached its highest since November 2014 at $73.06 per barrel during the last session.
Brent crude futures were at $77.40 per barrel, down 22 cents, or 0.3 percent lower from their previous close.
Oil prices have been rallying for much of 2018 on a tightening market conditions due to record breaking demand and voluntary supply cuts initiated by the Middle East dominated producers group of the Organization of Petroleum Exporting Countries, or OPEC.
Unforeseen supply disruptions from Canada to Libya and Venezuela have added to those cuts by the OPEC and nine other non-OPEC countries, which include Russia.
Even if output is slowing, US crude production is nearing 11 million barrels per day.
Russia and Saudi Arabia are already staying at similar levels, while output is expected to rise as OPEC and Russia ease their supply restrictions. This means that there will be three countries soon to be pumping out 11 million barrels of crude each day.
This also means that only three countries are meeting a third of world consumption.
Even so, analysts still warn that the market has little spare capacity to deal with further disruptions.
“With inventories still declining and spare capacity uncomfortably low, there is very little cushion for any supply disruption caused by rising geopolitical risks,” said ANZ bank in a report on Thursday.
In spite of the increasing US output, US commercial crude oil inventories slipped by almost 10 million barrels in the week to June 22, at 416.64 million barrels, according to the Energy Information Administration on Wednesday.
Traders are expecting inventories to draw further in coming weeks with an outage of Canada’s Syncrude locking in over 300,000 barrels per day of production. The outage is expected to for at least a month through July, according to operator Suncot.
The stock draw was also because of high exports of almost 3 million barrels per day. This came along with domestic refinery activity reaching a utilization rate of 97.5 percent, which is the highest in at least a decade.
Oil demand has been running after records for the better part of 2018 so far, but the future is looking bleak amid intensifying trade disputes with the United States and other major economies, including the European Union and China.
“Our macroeconomic view remains overwhelmingly bearish,” said Marex Spectron, a commodity brokerage.
With other commodities, gold prices dipped and continued to stay near a 6-month low as traders ponder over the latest development in the US-China trade conflict.
Gold futures for delivery in August on the Comex division of the New York Mercantile Exchange dropped 0.27 percent to $1,252.80 per troy ounce.
The White House has announced on Wednesday that it would not be aiming to impose the new 25 percent new limits on Chinese ownership in US tech-oriented companies, as reported earlier in the week. Instead, the government would depend on the newly improved Committee on Foreign Investment in the United States, or CFIUS, to handle the concerns.