By Barani Krishnan
Investing.com - Oil prices plunged 5% Thursday in this year's worst drop and the worst fall since the start of OPEC production cuts in December. The escalating U.S.-China trade war and huge crude pileups from weak refiner demand combined to roil the market.
West Texas Intermediate futures, the benchmark for U.S. crude, fell below key $60 per barrel support, trading down $3.14 , or 5.1%, at $58.28 per barrel by 11:15 AM ET (15:15 GMT).
London Brent futures, the global benchmark for oil, lost its $70-per-barrel perch, falling $3.13, or 4.4%, to $67.86
"Ugly macro, ugly price action," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.
"Market is bidless as WTI is through the 200-day moving average, and Brent is through the 50-Day and approaching the 200-day moving average," Shelton said.
Wall Street's three key stock indexes fell by more than 1% each as investors fled from risk on fears that the trade war will have profound and long-term consequences for growth.
Oil markets have been teetering since the start of the week after U.S. President Donald Trump moved to block popular Chinese cellphone maker and technology giant Huawei from the U.S. market as an extension of the tariffs he had been piling on China.
The selloff accelerated on Wednesday after data from the U.S. Energy Information Administration showed a surprise crude oil build of about 5 million barrels, on the average, for a second running week. The inventory spike came on the back of muted U.S. refinery runs, despite Monday's Memorial Day holiday, which marks the unofficial start to peak summer driving activity in the U.S., being just days away.
As the one community that could typically be counted on to deliver the demand and strong prices typical for oil in the run-up to summer, American refineries have been uncharacteristically weak in their support of crude prices this year. Doing longer-than-expected plant maintenance and processing less crude than anticipated week after week, refinery owners have become a new source of frustration to oil bulls already reeling from stubbornly highly U.S. crude production.
Aside from the surge in crude inventories, the EIA said total motor gasoline stockpiles also increased by 3.7 million barrels during the week ended May 17, against forecasts for a drop of nearly 816,000.
Distillate fuel inventories rose by 800,000 barrels last week versus expectations for a drop of 48,000 barrels.
Analysts said the main reason for this year's weak U.S. refinery runs was the softer crack, or profit margins, for gasoline and other fuels this year compared to a year ago. As of Wednesday, the gasoline crack stood at around $21 per barrel versus around $28 seen just before summer 2018.
If the pace of refining in the U.S. wasn't bad enough, Asia’s oil refiners were also considering reducing output after margins slumped to their lowest level of the season since 2003, Reuters reported.
Despite Thursday's bloodbath in oil, crude prices are still up substantially for the year, with WTI still showing a year-to-date gain of 28%. Brent is up 26% for the year.