Oil prices continued their correction yesterday, Brent falling by nearly an additional 3% to a five-week low of $62 per barrel. WTI fared somewhat better, shedding only 1%. As a result, the price differential between Brent and WTI has narrowed to less than $5 per barrel, putting it at its lowest level since mid-April. Initially, the firm US dollar continued to weigh on prices yesterday. A correction of the strong dollar during the later course of trading did not result in oil prices recovering, however, which can be seen as a sign of relative weakness. Reports that Iraq could step up its oil exports significantly in June (see yesterday’s Commodities Daily) put pressure on Brent. Against this backdrop, other money managers are also likely to jettison their long positions. The correction process could thus continue, though this will depend in part on whether the US dollar resumes its appreciation. Lower prices could be precluded by the fact that roughly 10% of Canadian oil sand production is currently at a standstill due to wildfires in Alberta province. Besides the expectation of declining US inventories, this could also be one explanation why the WTI price has performed better of late, as Canada is the leading supplier of oil to the US. Yesterday evening, the American Petroleum Institute reported a surprising 1.3 million barrel increase in US crude oil stocks following three consecutive weeks of decline. The US Department of Energy will be publishing the official inventory data this afternoon. In view of yesterday’s API data, the market’s previous expectation of a 1.2 million barrel inventory reduction is likely to prove to have been too high and now have been adjusted.
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