NEW YORK, Mixed signals on market dynamics from Russia and mention of a possible bubble sent crude oil prices deep into negative territory in early Thursday trading.
Oil prices rallied strongly in Wednesday trading after U.S. data showed a draw on crude oil inventories, which offered support for a market moving further away from the supply side. Some of the draw, however, was because of short-term factors attributed to an outage from Plains All American Pipeline and, to a lesser extent, from protest activity over a planned pipeline from North Dakota.
Prices have stayed above the $50 per barrel mark after members of the Organization of Petroleum Exporting Countries suggested a production freeze, or even a cut, to control markets. Without any formal action taken yet, the proposal is seen as a buffer against a dramatic drop in the price for crude oil.
The head of Russian oil company Rosneft offered mixed comments Thursday on where the market was headed. Rosneft said it could in theory inject tens of thousands of new barrels into the global economy, but at the same time said supply-side pressures were coming to an end.
Oil prices reversed course from Wednesday’s rally to turn sharply lower by the start of trading in New York. The price for Brent crude oil was down 2 percent to open at $51.63 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was off 1.9 percent from the previous close to start the day at $50.85 per barrel.
On the economic front, European Central Bank President Mario Draghi said Thursday the regional economy was resilient, but subject to downside risks.
“Looking ahead, we remain committed to preserving the very substantial degree of monetary accommodation,” he said.
The ECB president in July said the regional economy was expected to be “mildly expansionary” this year.
A research note from brokerage firm PVM, meanwhile, warned that some of the drops in U.S. crude oil inventories were likely short-term. On rallies in crude oil prices since OPEC offered its proposal last mean, the firm said much of the gains were coming despite the absence of hard facts.
“Another way to put it is that oil prices are inflated,” it said.
By Daniel J. Graeber