Oil prices drop as spare storage capacity runs low
Oil prices fell on Monday, with U.S. crude dropping nearly 3 percent to a six-year low as the dollar hit fresh highs and spare oil storage capacity runs low
Oil prices fell on Monday, with U.S. crude dropping nearly 3 percent to a six-year low as the dollar hit fresh highs and spare oil storage capacity runs low around the world.
U.S. crude fell to $43.57 in early trading, its lowest since March 2009, before rebounding to $44.37 by 0335 GMT, still down almost half a dollar since its last settlement. Brent was trading at $54.27 a barrel, down 40 cents.
Traders said the price falls were due to diminishing spare capacity to store excess oil as well as the strong U.S. dollar.
China has been taking advantage of low prices to build up its strategic petroleum reserves (SPR), which have pushed its imports to record highs despite slowing economic demand, but analysts say new spare capacity will only become available later this year, denting near-term import needs.
"While the low crude oil prices are expected to incentivise crude stockbuild (in China), stockpiling activities at the SPRs this year will remain constrained by available spare capacity," said Wendy Yong, analyst at energy consultancy FGE.
"However, in anticipation of the start-up of another SPR site this year, crude imports could pick up later this year," she added.
Space capacity is also running low in the United States.
"Bearish comments from the International Energy Agency that the U.S. might soon run out of empty tanks to store crude and a suggestion that global supply was up 1.3 million barrels per day in February year on year at 94 million barrels weighed on sentiment," ANZ said on Monday.
Oil prices are also under pressure from the strong U.S. dollar, which remained close to multi-year highs.
The Fed's policy-setting committee meets this week with the expectation that it could tighten monetary policy as soon as June.
A stronger greenback makes commodities denominated in the dollar more expensive for holders of other currencies.
The euro slipped as low as $1.0457 early in the Asian session, its lowest since January 2003.
The euro has dropped about 25 percent versus the dollar since around the middle of 2014. It suffered its biggest weekly fall since September 2011 last week, shedding 3.2 percent as the European Central Bank launched its 1.1 trillion euro bond-buying stimulus program.
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