Prices for front-month Brent crude futures, the international benchmark for oil, were at $50.92 per barrel at 0051 GMT, down 4 cents from their last close. U.S. West Texas Intermediate (WTI) crude futures were down 8 cents at $48.16 a barrel. "Crude oil prices fell as concerns over rising U.S. inventories resurfaced... Rising exports in Libya also weighed on prices," ANZ bank said on Wednesday.
NEW YORK: US oil traders are hoping the sweltering days of July are also hot ones for demand, believing the new month is the last best opportunity this year to see the overhang of inventories finally subside.
Export opportunities to Asia and big U.S. summer driving demand - expected to hit a record this weekend - are seen as the primary drivers for a drawdown in stocks that have remained stubbornly above seasonal averages.
July is usually a big month for drawdowns: Over the last five years, inventories of crude oil have dropped by an average of 2.9 million barrels per week in July, according to the U.S. Energy Information Administration.
But analysts warn that if inventories do not draw down in earnest, it may dash the hopes of many in the industry of seeing higher prices by the end of this year.
"Typically June/July represents the seasonal peak in refinery demand for crude," said David Thompson, executive vice-president at Powerhouse, an energy-specialized commodities broker in Washington. "It gets tougher to use up all that crude as refinery utilization starts to ease off as we move past the peak of summer driving season."
A record number of motorists are expected to hit the road for the Fourth of July holiday. U.S. gasoline demand was up 0.4 percent in April from the year-ago period, the first year-over-year increase since December, according to the latest U.S. government data.
In addition, a window has opened for U.S. crude exports to Asia, after prices made it uneconomical to send U.S. supplies offshore in recent months. Robust appetite from Japanese and South Korean buyers could help soak up excess supplies.
Investors came into this year optimistic, and indeed, U.S. crude prices topped out near $55 a barrel in February in the wake of the deal struck by the Organization of the Petroleum Exporting Countries with other key producers to reduce supply by 1.8 million barrels per day (bpd) that began in January.
But OECD total oil inventories are still above 3 billion barrels due to an unexpected recovery in Libyan and Nigerian supplies and a rebound in U.S. shale production.
Several banks in the last week cut their oil price projections for the rest of the year, with analysts from Bank of America-Merrill Lynch on Friday saying the "the much trumpeted OPEC output deal has been a complete flop."
U.S. crude futures have slumped about 15 percent so far this year to about $46 per barrel, and as of Friday, ended its worst half-year performance in 19 years.
"We expect to get real clues in the next 4-5 weeks about second half 2017 oil market sentiment," Credit Suisse said in a note on Thursday.
"If stocks do not fall much next month, at the very least we would worry that bearish sentiment again would come to the fore." - Reuters
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