Oil has slumped for three straight weeks but Bob Yawger doesn't think the Saudis will reduce output
Oil fell as an increase in U.S. inventories added to market sentiment over weaker demand and steady supplies.
West Texas Intermediate declined toward US$76 a barrel after losing two per cent in the previous session, while global benchmark Brent traded below US$81. U.S. Energy Information Administration data on Wednesday confirmed that crude stockpiles rose to the highest level since August, including a build at the key hub in Cushing, Oklahoma.
“The EIA report set in motion a resumption of the weakness that has troubled the market recently as fundamentals have started to loosen up,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S.
Crude trading has been buffeted by conflicting signals, with prices sinking to a three-month low last week before staging a modest recovery. The International Energy Agency said on Tuesday that production growth means markets won't be as tight as had been expected this quarter. And while OPEC on Monday highlighted robust demand trends, traders expect the group's biggest producer, Saudi Arabia, to prolong a supply cut.
The U.S. data showed some ambiguity, with a drawdown in product inventories signaling stronger demand for gasoline, diesel and jet fuel, which would also boost crude consumption. In addition, implied gasoline consumption rose, although it remains below the five-year seasonal average.
Still, signs of softness are evident along the oil futures curve. The spread between WTI's two nearest contracts has flipped back to contango — where near-term prices are below longer-dated ones — and the second-third month differential has followed suit in another indication that conditions are loosening.
- WTI for December delivery fell 0.8 per cent to US$76.07 a barrel by 9:49 a.m. in London.
- Brent for January dropped 0.7 per cent to US$80.61 a barrel.
Meanwhile, President Joe Biden's energy security adviser, Amos Hochstein, said the U.S. will enforce sanctions on more than 1 million barrels a day of oil exports from Iran amid the conflict in the Middle East. A resurgence in flows from Venezuela after the easing of U.S. curbs could help offset any supply losses, with Vitol Group hiring a supertanker to load oil from the Latin American nation.