Oil futures extended a precipitous slide following the release
of weekly inventory data earlier Wednesday. The U.S. Energy
Department said crude inventories surged by 5.9 million barrels
last week to 375.1 million barrels, more than triple the 1.8
million barrel inventory build analysts expected. On Tuesday, the
American Petroleum Institute reported a 313,000-barrel increase
in its weekly report.
NYMEX-traded crude for December delivery slid as much as one
percent following the Energy Department, falling below $86 per
barrel. The benchmark U.S. oil contract has not closed below the
$86 per barrel level since July. The U.S. Oil Fund (NYSE:
), which tracks front month oil futures, is off 1.5 percent in
mid-day trading. That ETF has tumbled 7.4 percent in the past
month and almost five percent in the past 90 days.
While part of the inventory build can be attributed to
increased production at various U.S. shale plays, it also
indicates economic activity in the U.S. remains sluggish because
the U.S. is the world's largest oil consumer. Even before
Wednesday's inventories report, crude stockpiles were at elevated
levels for this time of year.
Waning demand and a lethargic economic recovery have plagued
oil equities this year as well. Despite the fact that the SPDR
S&P 500 (NYSE:
) is up 12.6 year-to-date, Dow components Exxon Mobil (NYSE:
) and Chevron (NYSE:
) have not been able to keep pace with the broader market. Exxon
and Chevron (the two largest U.S. oil companies) are up 6.3
percent and 3.2 percent, respectively, this year.
Those returns likely frustrate investors that have seen other
high-beta sectors rally at various points this year. Adding to
investors' woes is the fact that the Energy Select Sector SPDR
is the most correlated sector SPDR
to SPY, according to State Street data.
Oil could receive a near-term pop if Iran makes good on its
threat to halt exports if the U.S. and Europe move forward with
economic sanctions against the OPEC member. Sanctions have
already clipped Iran's oil production. A year ago, the country
was pumping 2.5 million barrels per day, but today
number has dwindled to just 800,000 barrels
The Eurozone has previously been a prime destination for
Iranian crude, but China is now the top purchaser of Iranian oil.
China is the second-largest oil consumer in the world behind the
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