Oil Prices Slip on Bearish Inventory Data 

$40 a barrel seen as a key level by market participants

U.S. oil prices dipped below $40 a barrel several times Thursday, as heavy stockpiles continued to push crude lower.

Light, sweet crude for December delivery fell as low as $39.89 a barrel on the New York Mercantile Exchange, the lowest intraday level since August. It settled down 21 cents, or 0.5%, at $40.54 a barrel. Brent, the global benchmark, rose 4 cents, or 0.1%, to $44.18 a barrel on ICE Futures Europe.

Data provider Genscape Inc. reported Thursday morning that stockpiles have seen strong growth at Cushing, Okla., the delivery point for the benchmark U.S. futures contract, according a person who had reviewed the report. They rose 2.1 million barrels in the week ended Tuesday, with 1.8 million of those barrels coming since Friday, according to the data.

The addition comes on top of data from Wednesday showing nationwide crude supplies increased by 300,000 barrels last week, according to the U.S. Energy Information Administration. That was less than analysts expected but counter to a draw reported by the American Petroleum Institute, an industry group.

The inventory report showed resilience in U.S. shale oil production, which at 9.182 million barrels a day last week was only 3,000 barrels a day fewer than the previous week.

“There’s a lot of barrels out there weighing on the market,” said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.

Oil prices are staying above $40 primarily for technical reasons, said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates LLC. It is a “huge historical level” that was once the top of the market, which is apt to keep trend-based traders who rely on momentum and historical patterns to avoid a selloff for now.

“$40 is the battle line,” Mr. Navy said in an email. “A close below $40 should open the flood gates.”

The news will heap more pressure on Saudi Arabia to agree to a compromise with other producers in the Organization of the Petroleum Exporting Countries that want it to slow its rampant production. The group plans to meet Dec. 4, but most analysts say Saudi Arabia will not back down from its efforts to keep customers by pumping more and undercutting competition.

A likely U.S. interest rate rise in December will also likely strengthen the dollar, increasing pressure on global oil prices, which are denominated in dollars.

“Oil market sentiment has turned back to ‘max bearish’ mode,” London-based Energy Aspects said in an analyst note. “Talk of $20 oil is back.”

With stockpiles nearing historic highs, a mild winter and limited heating demand common during the continuing weather phenomenon El Niño could push oil toward $20 a barrel, analysts at Goldman Sachs Group Inc. said in their note on commodities that was sent to reporters on Thursday.

The unexpectedly long slide in oil prices is largely responsible for the fall across commodity markets, the bank said, adding that it has a negative outlook for all commodities for the next six months.

It forecast $45 U.S. oil and a recovery delayed until late 2016. Simmons & Co. International also said Thursday it expects a recovery in the second half of 2016, but warned that it is far from certain.

“While an eventual recovery to threshold pricing is inevitable, the duration of the current malaise remains the key question…and there are legitimate risks” that it will take longer than expected, Guy Baber, an analyst with the energy investment bank, wrote in a Thursday note.

Gasoline futures settled up 2.18 cents, or 1.7%, at $1.2879 a gallon. Diesel futures fell 0.86 cent, or 0.6%, to $1.3718 a gallon.

Source: WSJ – Oil Prices Slip on Bearish Inventory Data

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