West Texas Intermediate was trading at $50.91 US a barrel on Wednesday, down $3.07 or more than six per cent. The decline came a day after oil hit a 2015 high on Tuesday.
The catalyst for Wednesday's sell-off was new data from the U.S. Department of Energy that showed the country now has 482 million barrels of oil in storage. That's a jump of more than 10 million barrels and the highest level since 2001.
Beyond the oil in storage, the new data showed that U.S. oil producers continue to pump out more oil than they ever have. Output increased by 9.4 million barrels during the month of March, the Energy Department said. Gasoline in storage also increased by 817,000 barrels, surprising analysts who had been expecting a decline of about a million barrels.
April is typically a month when inventories build up in preparation for the busy summer driving season. But current inventory levels are more than 100 million barrels higher than what's normally in storage this time of year, based on data from the last several decades.
Analysts had been expecting a bleak number, but not this bad. Inventories increased by almost 11 million barrels last week. A consensus of analysts polled by Bloomberg had been expecting a figure closer to four million barrels.
"The report is very bearish with the large crude oil inventory build," said John Kilduff, partner at Again Capital LLC in
Existing oil wells are pumping out more oil than ever, as companies try to pay their bills. But at the same time, they are shutting down an unprecedented number of oil rigs, as the chart above shows.
The Saudis also added to the oil glut, as the world's largest oil producer announced early Wednesday that it produced a record 10.3 million barrels per day in March.
"With such a level of OPEC production it will be difficult to escape large stock-builds throughout the year," analyst Olivier Jakob at Swiss-based Petromatrix said.