NEW YORK, Reuters – Oil prices have tumbled three per cent, with US crude futures hitting three-month lows, as US crude and petrol stocks surge on weak demand during the peak summer driving season.

The US Energy Information Administration (EIA) said crude stockpiles soared 1.7 million barrels last week, instead of falling 2.3 million barrels as forecast. Petrol inventories rose 452,000 barrels, compared with analysts’ expectations for a 40,000-barrel increase.

Oil extended losses as the US dollar rallied after the Federal Reserve left interest rates unchanged while citing diminished near-term risks to the US economic outlook that meant a potential rate hike later this year.

US West Texas Intermediate (WTI) crude futures settled down $US1.00, or 2.3 per cent, at $US41.92 a barrel. WTI’s session low was $US41.68, a level last reached on April 20.

Brent futures fell $US1.40, or 3.1 per cent, to settle at $US43.47 a barrel. Brent earlier dropped to $US43.33, the lowest since May 10.

Reuters data also showed that WTI and Brent had inched closer to their 200-day moving averages. Breaching those could open the door for more prices drops, traders said.

“We will likely break through the $US40 levels in days and weeks to come,” said Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors in New York.

“The bottom line is the street has got it wrong as far as the oil markets achieving supply-demand balance this year.”

The EIA reported refinery crude runs fell 277,000 barrels per day last week as utilisation rates fell 0.8 percentage point to 92.4 per cent of capacity.

“A drop in refinery runs at the peak of summer driving season indicate refiners are dialing back amid faltering profit margins,” said Matt Smith, analyst at New York-based oil cargoes tracker Clipperdata.

On Tuesday, the largest independent US refiner Valero Energy Corp said it expected lower refinery utilisation over the rest of the year to counter slumping margins caused by record supplies of petrol and diesel.

BP’s refining margins hit a six-year low in the second quarter and the oil major said margins would remain under significant pressure in the coming months.

Oil prices are still up about 60 per cent from 12-year lows of $US26-$US27 in the first quarter. But the rally has faded since Brent and WTI breached $US50 in May, on worries that oil may be headed again for a glut like that which forced prices off from highs above $US100 in mid-2014.

Some market participants think the glut concerns are exaggerated.

“I think we will stay between $US40 and $US45,” said Salvatore Recco, who helps oversee about $US2 billion of client money, including in oil, at Gravity Investments in Denver, Colorado.

“We’d only tell our customers to worry about the oil outlook when the central banks issue a serious downgrade to the economic outlook.”

Extracted in full from The Daily Telegraph.