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Crude oil plunges following record buildup, increasing supply concerns

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Shutterstock photo - -- WTI crude oil futures plunged more than 6% on Wednesday to reverse its two-day rally, amid a sharp buildup last week when inventories rose by its highest weekly level in more than 13 years.

The Energy Information Administration (EIA) said in its weekly inventory report on Wednesday that U.S. crude oil storage increased by 10.95 million barrels for the week that ended April 3, more than tripling its expected count of 3.28 million. The figure represents the largest weekly buildup for WTI crude nationwide since 2001.

The massive stockpile exacerbates concerns that the U.S. will reach full storage capacity by Memorial Day, a development that could place further downward pressure on crude oil prices . WTI crude is down more than 50% from last July when it exceeded a $100 a barrel.

On the New York Mercantile Exchange, WTI crude for May delivery plummeted 6.36% or 3.40 to $50.58 at the close, slightly above its session-low of $50.55. Earlier this week, WTI crude futures moved above $53 a barrel amid easing geopolitical risk after a preliminary framework on an Iranian Nuclear Deal was reached last week in Lausanne, Switzerland.

As WTI crude prices head on a downward path, storage levels nationwide have moved in an inverse direction. Following the EIA's surprising report, crude oil storage in the U.S. has now reached 482.4 million barrels, its highest level in more than 80 years. In October, there were less than 360 million barrels in storage in U.S. tanks nationwide.

During its last estimate in September, the EIA placed full capacity at 521 million barrels up from approximately 500 million a year earlier. If inventory levels approach full capacity, drillers could be forced to slow shale oil production in the Williston basin in North Dakota and the Permian basin in Texas among others. At last count, oil is being pumped in the U.S. at its fastest rate in more than 30 years.

Increased refinery production, however, could help reduce the record-high storage levels. Since last summer, refineries nationwide have reportedly added more than 100,000 barrels a day of crude when they produced their highest levels on record.

The EIA's figure on working capacity also does not take into account the amount of crude oil being stored in off-coast tankers or in transit from Alaska, Bloomberg Businessweek reported.

On the Intercontinental Exchange (ICE), brent crude for May delivery also fell more than 5%, dipping by 3.46 to 55.65 a barrel. The spread between the international and U.S. domestic benchmark stood at $5.07, below Tuesday's level of $5.18.

Brent crude futures plummeted after Saudi Arabian oil minister Ali al-Naimi said the Persian Gulf kingdom increased its crude output to a monthly record of 10.3 million barrels per day in March. Furthermore, the Saudi oil minister indicated that production levels will remain constant for the short-term future.

"In terms of petroleum, I expect that prices will improve in the near future, that the Kingdom's production will continue at approximately 10 million barrels per day," al-Naimi said during a speech at an energy event in Riyadh. offers an extensive set of professional tools for the financial markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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