Oil prices registered a drop of more than a dollar on Wednesday as fears of Greece’s exit from the euro single currency and a larger-than-expected rise in crude stocks in top consumer United States dented the outlook for oil demand growth.
Many investors believe prolonged political crisis in Greece may push Europe into a deeper financial mess and hit the demand for oil. Concerns are also being raised about the slowdown of Chinese economy.
Brent crude slipped as low as $111.20 a barrel and traded at $111.25 on Wednesday. US oil fell $1.23 a barrel to $92.75, the lowest since 19 December.
“A further $2-$3 fall is acceptable under current conditions,” said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments. “The market has been under pressure because of weak sentiment. But if you go by supply-demand balance, oil prices are undervalued.”
The Japanese analyst added that oil prices may start to spiral once the US holiday season begins. He also expected supplies to tighten because top oil producers and exporters such as Saudi Arabia have very limited spare capacity. Top OPEC members have already ramped up output to replace Iranian oil exports.
Data from the American Petroleum Institute (API) suggested US crude stocks increased nearly four times than what analysts had expected. Crude inventories rose 6.57 million barrels in the week to 11 May, outpacing analysts’ expectations of a rise of 1.7 million barrels.
Political parties in Greece are bracing for another round of elections after abandoning efforts to form a government, pushing it closer to bankruptcy and a eurozone exit.
According to Reuters technical analyst Wang Tao, Brent remains neutral above a support at $110.34 per barrel, the 7 May low, while support for US oil lies at $92.79 per barrel and the contract may either hover around this level for one trading session or rebound moderately to $94.80.