Oil prices fell sharply on Wednesday as weak economic data out of China and crude oil inventory gains in the United States’ spooked oil markets.
WTI fell more than 5% on Wednesday after booking sizable gains the day prior. At 1:11pm EDT, WTI was trading down -$3.07 (-5.38%) at $54.03. Brent crudefared almost as poorly, with the global benchmark falling $2.96 per barrel (-4.83%) to below $60 again, at $58.34.
On Tuesday, the API reported a surprise crude oil inventory build of nearly 4 million barrels, unsettling markets that had seen huge gains on earlier news that the United States was pushing back tariffs for some of the items it was expected to go into effect in the beginning of September.
Then on Wednesday, grim economic data game in from China, which showed a sharp—and surprise—decline in industrial output growth to a 17-year low. Germany too reported weak economic data for Q2 as its exports slowed, hinting at a possible recession.
The final straw on Wednesday was the Energy Information Administration (EIA) report that backed up Tuesday’s API report of a build in US crude oil inventory.
Rising crude oil inventory, faltering demand growth, and fears that the China and US trade war will further depress China’s economy definitively tipped the scales into bear territory, with tensions in the Middle East over the Persian Gulf and Strait of Hormuz able to push up prices.
OPEC’s production cuts were insufficient as well, with most analysts agreeing that global oil inventories are still too high. But OPEC has limited options to cut even further, with its largest oil producer, Saudi Arabia, already making large sacrifices in this regard. Russia, too, is likely uninterested in further cuts.