Supply and demand rear their ugly heads.
NEW YORK—Crude-oil futures dropped, as the front-month contract comes under increasing pressure from a developing surplus at its delivery point in Cushing, Okla.
Light, sweet crude for June delivery traded $1.24, or 1.5%, lower at $82.44 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 86 cents, or 1%, lower at $84.84 a barrel.
Oil inventories at Cushing reached 34.1 million barrels in the week ended April 16, less than one million barrels shy of a record, the U.S. Energy Information Administration said Wednesday. The extra oil has few outlets, with stockpiles across the Midwest at their highest in at least 20 years and refiners already producing enough fuel to further inflate gasoline and distillate inventories.
The oil market is preparing for an extended surplus at the delivery point for physical barrels tied to the crude futures contract. However, many traders are still expecting supplies to tighten later this year as the economic recovery lifts demand. As a result, oil for delivery in the next month, when supplies are expected to be high, is trading at an increasingly steep discount to oil for later delivery. Recently, June crude futures traded at a $2.18 discount to the July contract, the widest gap between the two front months since Dec. 15.
Crude Declines on Cushing Oil Glut