By Kim Khan
Investing.com - Oil prices fell Wednesday as Saudi Arabia and the United Arab Emirates pledged to flood the globe with crude supply, while a bigger-than-expected build in U.S. weekly oil inventories helped keep prices depressed.
WTI futures fell 3.3% to $33.22.
London-traded Brent, the global benchmark, lost 3.4% to $35.94.
With the collapse of coordinated output cuts by Saudi Arabia, Russia and others, the Saudi energy ministry has directed producer Saudi Aramco (SE:2222) to raise its output capacity to 13 million from 12 million bpd.
UAE national oil company ADNOC also it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.
"Saudi's shock and awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers," UBS analysts said in a note.
“Saudi Arabia is determined to flood the market, depress prices as much as possible, kill U.S. shale producers and grab as much market share for themselves,” Investing.com analyst Barani Krishnan said.
“As of last week, the U.S. exported 3.41 million barrels per day in crude,” Krishnan added. “It’ll be interesting to see how much of that can be held up with the way the Saudis will be exporting their oil. We can expect to see larger imports coming into the EIA numbers in coming weeks as the Saudis almost give away their crude. That will surely ramp up U.S. crude inventories.”
Oil inventories rose by 7.7 million barrels for the week ended March 6, the EIA said. That compared with expectations for a build of 2.3 million barrels, according to forecasts compiled by Investing.com.
Gasoline inventories sank by 5 million barrels, versus forecasts for a decline of about 2.5 million barrels. Distillate stockpilesdropped by 6.4 barrels, compared with expectations for a drawdown of 1.9 million barrels.
“The latest EIA dataset tells a story of high crude builds and sharp fuel drawdowns and the narrative can almost entirely hung on the falling refinery runs, which are steadily at under the 90% norm for this time of year and looking likely to get to 85% or below,” Krishnan said.
“While what we’re seeing now could be argued as ‘higher demand’, the reality is it’s just a function of refining dynamics,” Krishnan said. “Put the refiners back on full steam and you’d see gasoline and distillates build as well.”
-- Reuters contributed to this report