US crude tumbled for a fourth straight session today, within cents of three-month lows below $74, on concern that the European debt crisis will curb global growth and energy demand. A stronger dollar today also reduced the purchasing power of other currency holders for oil. And brimming crude stockpiles at the Cushing, Oklahoma pricing point for Americas benchmark West Texas Intermediate are exercising pressure on contracts closest to delivery, creating the sharpest contango market structure in 15 months. "The European debt crisis has made us question the growth outlook for the global economy and therefore fuel demand," said Toby Hassall, an analyst at CWA Global Markets in Sydney. "We've got record stockpiles at Cushing and that is certainly weighing on the nearby contracts for crude, but the macro sentiment is playing a role as well. We have seen an increase in risk aversion across equities and some commodities markets."
US crude for June delivery declined 66 cents to $73.74 a barrel at 0317 GMT, after touching an intraday trough of $73.62 on Thursday, the lowest price for a front-month contract since 12 February, Reuters reported. Rising global energy demand and hopes Europe can control the continent's debt crisis have supported ICE Brent crude. While WTI has dropped every day this week except Monday to post a second consecutive weekly decline, European benchmark ICE Brent was poised to end the week higher, despite a fall of 34 cents to $79.77 on Friday, when the June contract expires. "In the longer term, the bias for crude is to the upside," Hassall said. "We did a significant response from European policymakers at the beginning of this week, and the market is still digesting what the effect will be."
Oil posted sharp gains today following the announcement of a rescue package of almost $1 trillion, led by the EU and the International Monetary Fund for debt-laden European economies. But declines in Asia shares contributed to lower oil prices today. Japan's Nikkei average fell 1.6%, dragged down by a tumble in Sony after its profit forecast fell short of expectations. Analysts say the discount of front-month WTI to the second month contract may continue to widen as Cushing stockpiles continue to grow, extending last week's record of 37 million barrels. This means the so-called dislocation of WTI would increase, rendering the US benchmark price less useful as a gauge of the global supply and demand balance.
Tanks at Cushing, where WTI is priced, store flows of Canadian crude imported by pipeline. The hub is isolated from crude terminals in the Gulf of Mexico, where the US receives shipments from the Middle East, Latin America and Europe. "The US market at Cushing is near tanktops," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi. "To track the global market Brent is better now." Industry data provider Genscape said yesterday Cushing stockpiles rose by 1.2 million barrels to a fresh record 38.96 million barrels in the week to 11 May. The build brought inventories to what experts say is the delivery hub's operating capacity. Total operational capacity for oil storage is traditionally around 80% to 90% of Cushing's shell capacity, according to industry experts.
