zerohedge.com / by Tyler Durden / Jun 9, 2017 8:09 AM
With crude (and gasoline) prices doing nothing but tumble since OPEC announced its ‘extension’ deal, erasing all the hope-fuelled bounce off cycle lows, the question once again becomes, is $50 oil still realistic?
Oil prices have plunged back to levels not seen since OPEC announced its original production cut deal last November. Prices have been falling since the group extended their cuts for another nine months, a two-week slide that puts WTI back in the mid-$40s.
The underlying factors for the price drop are the same as before: U.S. shale production continues to rise; inventories remain elevated; and the markets are concerned that the OPEC cuts are not doing enough to drain the surplus.
But, in fact, the outlook has grown a bit darker more recently, as downside risks to the market have grown.
The immediate spark to the sharp percent selloff in crude oil prices on Wednesday came from the unexpectedly bearish EIA inventory report, which surprised market analysts. The report was especially bad news because both crude oil and gasoline inventories increased by 3.3 million barrels each at a time when stocks typically decline heading into the driving season. The increase ended several consecutive weeks of drawdowns and poured cold water on any hopes of swift rebound in prices – WTI and Brent dropped roughly 5 percent.