The combination of a big build in U.S. crude inventories this week and fears that the escalating U.S.-China trade war will slow global economic growth (and global oil demand) took a big whack out of oil prices and oil stocks today.
The U.S. Energy Information Administration reported that U.S. crude oil inventories for the week ended May 17 increased by 4.7 millions barrels for the prior week. At 476.8 million barrels, U.S. inventories are 4% above their 5-year average for this time of the year.
Speculation that the current trade war between the United States and China could drag on and on and on–perhaps until 2035–added to fears raised by signs of weak economic growth in the United States and Europe. In the United States the Purchasing Managers Index for manufacturing dipped to 50.6 in May, the lowest reading since September 2007. (In this index anything above 50 indicates expansion while readings below 50 signal contraction.) The Purchasing Managers Index in Japan fell back below 50–to 49.6–in May. In Germany the manufacturing index was deeply into contraction at 44.3 in May.
The damage in the energy sector was deep and widespread. Among oil producers Pioneer Natural Resources (PXD) fell 4.94%, Chevron was down 2.24%, Parsley Energy (PE) plunged 7.74%, and Diamondback Energy (FANG), another oil shale producer, was lower by 4.45%. Refiner Valero (VLO) was down by 6.15% and deepwater driller Transocean (RIG) dropped by 6.16%. The Energy Select Sector SPDR ETF (XLE) closed off 3.35%.
U.S. benchmark West Texas Intermediate closed down 5.26% to $58.19 a barrel.