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Crude oil about to end May with its biggest decline in 6 months

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Crude oil prices edged lower on Friday and are about to report their biggest monthly decline since November, due to the escalation of the Sino-American trade conflict and the rapidly growing oil production in the US.

The futures on US light WTI oil fell by 1.02% to 56.01 USD per barrel, while the Brent variety declined by 1.27% to 66.02 USD per barrel. At the beginning of March, the two oil varieties WTI and Brent recorded a drop of 12.3% and 9.3%, respectively.

WTI oil chart

The commodity markets are under pressure from the trade tensions, which risk global economic growth. The US President Donald Trump said that his administration would impose a 5% duty on all imports from Mexico on June 10. He added that customs tariffs will gradually increase until the problem of illegal immigration is resolved. This increases the fears of economic growth and oil demand.

The trade dispute with Mexico is taking place against the backdrop of the conflict with China, which many analysts predict that will lead to recession.

“It’s not good for the economy, at least according to bond and commodity traders”, said Michael McCarthy, chief market strategist at CMC Markets. According to him, the latest market reactions signaled a deterioration in moods about the prospects for global growth.

Crude oil prices are under pressure from a significantly lower-than-expected drop in US inventories and growing production in the country, which reached an all-time high of 12.3 million barrels per day.

According to data from the Energy Information Administration, crude oil inventories in the United States fell by 300,000 barrels last week to 476.49 million barrels. This is far less than analysts’ forecasts for a 900,000-barrel drop, and well below the US Petroleum Institute’s figure of 5.3 million barrels.

Meanwhile, the world’s largest oil exporter Saudi Arabia has increased production in May, but not enough to offset the smaller Iranian exports that collapsed after the tightening of sanctions against Tehran.

Earlier today, Saudi Arabia and its allies unambiguously urged Iran to respect the sovereignty of the Arab states.

“Iran must stop interfering in the affairs of the countries as it threatens security and stability in the region”, says the conclusion after two Gulf Cooperation Council summits and the Arab League in Mecca.

The security of the Gulf states is a “pillar of regional stability”. Saudi Arabian King Salman called on the international community to stop the “destructive” activity of its rival Iran.

US oil inventories

In its weekly petroleum report for the week ending May 24, the Energy Information Administration (EIA) announced that the commercial crude oil inventories in the US decreased by 0.3 million barrels from the previous week. The analysts polled by S&P Global Platts expected a fall of 1.4 million barrels for crude stocks, on average.

Gasoline production decreased last week, averaging 9.9 million barrels per day.

The distillate fuel production decreased last week, averaging 5.2 million barrels per day.

The US crude oil imports averaged 6.9 million barrels per day last week, down by 81,000 barrels per day from the previous week.

The total products supplied over the last four-week period averaged 20.3 million barrels per day, down by 2.0% from the same period last year.

US oil rig count

US oil and natural gas rigs fell by 13 to 1,061 for the week ended May 29, continuing a downtrend that has been largely in place since November, according to data released Thursday by S&P Global Platts Analytics. Last week saw a brief rebound to 1,074, up by six, as the rig count entered its seventh month of general decline.

The rig count has dropped steeply since late last year when it peaked at 1,299 rigs in mid-November.

The slippage in this widely watched metric is tied mostly to a new capital discipline by operators, rather than the direction of commodity prices, which had been favorable at more than $60/b when the rig count slide began in mid-November.