Oil prices went down on Wednesday, driven by a surge in US inventories that compounded existing worries about diminishing demand and stable supplies. The West Texas Intermediate (WTI) took a hit, slipping toward $76 per barrel, following a 2% drop in the preceding session. Simultaneously, the global benchmark, Brent, traded below $81.
The unsettling market dynamics were underscored by data from the US Energy Information Administration (EIA), confirming that crude stockpiles had reached their highest levels since August. The build-up included a significant accumulation at the crucial hub in Cushing, Oklahoma. Ole Hansen, the head of commodities strategy at Saxo Bank A/S, commented on the situation, noting that the EIA report triggered a renewed bout of weakness in the market as underlying fundamentals began to loosen.
The oil trading arena has been plagued by conflicting reports in recent times, witnessing oil prices hitting a three-month low last week before embarking on a modest recovery. Adding to the complexity, the International Energy Agency (IEA) asserted on Tuesday that production growth would ease the anticipated tightness in markets during this quarter. Meanwhile, traders are anticipating an extension of supply cuts by OPEC’s largest producer, Saudi Arabia. Encouragingly, a drawdown in product inventories indicated a surge in demand for gasoline, diesel, and jet fuel, potentially boosting crude consumption. However, the implied gasoline consumption still lingered below the five-year seasonal average.
The uncertainty induced by the US data is reflected in the oil futures curve, where signs of softness are becoming increasingly apparent. The spread between WTI’s two nearest contracts has flipped to contango, with near-term prices trailing those in the longer-dated contracts. A similar trend is evident in the second-third month differential. In parallel, the US has intensified sanctions on over 1 million barrels per day of oil exports from Iran, amidst escalating conflict in the Middle East. Nonetheless, the resurgence of flows from Venezuela, following the easing of US restrictions, might serve to offset some of the impending supply losses.
As the market grapples with conflicting factors, including the true demand for petroleum and the impact of sanctions on oil exports, oil prices are likely to remain volatile. The enforcement of US energy sanctions, coupled with uncertain demand trends, has raised concerns among governments worldwide, as the cost of crude oil continues to exert its influence on global economic performance in 2023.
President Joe Biden’s energy security adviser, Amos Hochstein, recently announced the US’s commitment to enforcing sanctions on more than 1 million barrels a day of oil exports from Iran amid the ongoing conflict in the Middle East.
In summary, amid increasing US inventories and market uncertainties, oil prices went down, highlighting the challenges and complexities confronting the current global energy landscape. With traders poised to assess crude supplies and demand trends, the market is expected to witness further fluctuations in the coming days, and the reverberations of these developments will continue to be felt globally.
Source: Bloomberg
