West Texas Intermediate sank today by 5.04% to $45.76 a barrel. International benchmark Brent crude dropped 3.95% to $48.14%.
The fall began with a surprise increase in U.S oil inventories reported by the U.S. Energy Information Administration. Oil stockpiles rose by 3.3 million barrels for the week ended June 2 from the previous week. Inventories of gasoline climbed by 3.32 million barrels. Oil industry analysts had expected a drop in crude inventories.
The rout in oil got worse, however, as the market digested news on U.S. imports and the source of U.S. imports. Oil from Iraq flooded into the United States at the fastest rate in five years in the week ended on June 2. That pushed imports from Iraq above those from Saudi Arabia.
Worst of all, from the market’s perspective, the data showed Iraq boosting exports in May to the highest level since December–in spite of a renewed OPEC agreement to extend production cuts through 2017.
The data on Iraqi production hit the market hard since oil traders are already nervous about the possibility that rising U.S. production would frustrate OPEC efforts to reduce global inventories. Cheating by a major OPEC producer like Iraq would allow the current excess inventory to persist well past the end of the current agreement on production cuts.
At today’s $45.76 s barrel, West Texas Intermediate is closing in on the May 4 low of $45.52 a barrel. The next stop below that is $43 and change. There’s reasonable support at that level. West Texas crude traded at a low of $43.32 in November and $43.03 in September 2016. August did see a lower low at $39.51 a barrel.