Oil prices have cascaded lower in the global commodities rout and may still have further to go before finding a floor, analysts say.
Government data showing weakening gasoline demand added to the selling pressure Wednesday, as did a stronger dollar, up 1 percent against a basket of currencies. West Texas Intermediate fell 2.3 percent to $86.68 a barrel, a fresh 2013 low, and Brent, the international benchmark, hit $97.80, a 2.1 percent decline.
"If we break $86, I'm looking for $82," said John Kilduff of Again Capital. "We've been unable to break that a couple of times. It's going to be a tough nut to crack again. I would expect Saudi and OPEC response if it does." Kilduff said WTI could reach $82.66 per barrel, a level reached last June.
Ample crude supplies, boosted by increased U.S. production, has been met with a pull back in demand for gasoline, now at a 16-year low. The Energy Information Administration said demand for motor fuel fell 1.1 percent to 8.3 million barrels a day during teh eek ending April 12.
"From the bear standpoint, everything seems to be dovetailing," said Gene McGillian of Tradition Energy. "You have worries that the U.S. economic recovery is really stalling and starting to ehad lower, and we're having more oil output showing up."
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The drop in demand pressured oil, as has several reports on declining demand recently, including from the International Energy Agency last week. At the same time, the U.S. production has increased, to an estimated 7.3 million barrels a day in 2013, from 6.5 million in 2012, according to EIA.
"It could go to $83," said Andy Lipow, president of Lipow Oil Associates. "It could be another leg down here. You start getting it close to a number where people want to start coming in and buying. In the scheme of things, it's not that world oil demand has plumeted. It's just slowing. There are people that are going to come in and say on a world basis, oil is cheap."
The EIA also said oil stockpiles last week dropped by 1.2 million barrels, slightly higher than expectations. Supplies of other refined products—diesel and jet fuel—increased by 2.4 million barrels. Analysts had expected gasoline inventories to fall by 600,000 barrels.
"We're still importing over seven million barrels a day," Lipow said. "Our oil production is going up. That's a good thing. Demand continues to grow in Asia, South America, and Africa. We see stagnant demand in the U.S. and declining demand in Europe."
Refinery utiliiziation fell by 0.5 percent to 86.3 percent. But Lipow points out that refining operating has grown. "Refining operating capacity is at the highest level ever reported by the EIA," he said. "In the past week, we processed 15.1 million barrels a day." That compares to 14.4 million barrels last year, and 14 million barrels a day at this time two years ago.
The higher gasoline production has helped gasoline prices fall, a relief to consumers who are also pressured by higher taxes and worries about an economic soft patch. Gasoline prices have been falling on a national basis—at $3.51 per gallon nationally Wednesday, from $3.68 a month ago, according to AAA.
Lipow expects gasoline to reach $3.30 a gallon nationally by Memorial Day weekend. "What's happening is we're turning that crude surplus into products," he said.
Ray Carbone, president of Paramount Options, has a more bearish outlook for crude. He sees WTI oil hitting $77 before reversing, and Brent reaching $90 though the spread between the two could narrow.
"That's when OPEC says, 'hey we're going to cut production. We're going to defend the $100 Brent price, which is already broken. The market is very well supplied at the moment because they've been pumping a lot.That's one of the reasons it may stop," he said. "I've just come back from the (Mideast) region. Everybody needs a high oil price. They're spending, spending, spending. They have to defend it at some point."
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