Oil prices fell sharply on Wednesday as the latest data showed a huge increase in U.S. crude inventories and record production levels, adding to the concerns about weakening demand in Asia.
According to the U.S. Energy Information Administration (EIA), U.S. crude stocks rose by 3.6 million barrels last week to 421.9 million barrels, far exceeding analysts’ expectations for a 1.8 million-barrel rise. The weekly government data also showed that U.S. crude production was holding at a record 13.2 million barrels per day that it hit in October.
The oversupply of U.S. oil weighed on the global market, pushing down the prices of Brent and West Texas Intermediate (WTI) crude futures. Brent futures settled down $1.29, or 1.6%, at $81.18 a barrel. WTI fell $1.60, or 2%, at $76.66.
The price gap between the front month and the second month contracts of WTI also widened, indicating that the market was moving toward a state of contango, where spot prices are lower than future prices. This could encourage traders to store oil for later sale, further increasing the stockpiles.
The bearish outlook for oil was also affected by the slowing economic growth in some of the major oil-consuming countries, such as China, Japan and the United States. China’s oil refinery throughput eased in October from the previous month’s highs as industrial fuel demand weakened and refining margins narrowed. Japan’s economy contracted in July-September, snapping two straight quarters of expansion. U.S. retail sales fell in October for the first time in seven months.
Meanwhile, the European Union diplomats said that Russian oil tankers were not targeted in the European Commission’s proposal for tightening sanctions on the country’s crude oil. Earlier, the Financial Times reported that Denmark would be tasked with inspecting and potentially blocking Russian tankers sailing through its waters under new EU plans as a way of enforcing a $60 per barrel price cap on Moscow’s crude.
The oil market is still supported by the ongoing output cuts by the OPEC+ group, which includes the Organization of the Petroleum Exporting Countries and its allies. Saudi Arabia and Russia, the two largest producers in the group, said this month that they would continue with their additional voluntary oil output cuts until the end of the year.
Some analysts also expect that the demand for oil will rebound next year as the global economy recovers from the pandemic-induced slowdown. The International Energy Agency and OPEC both raised their oil demand growth forecasts for this year and next, despite the projections of lower economic growth in many countries.
Source: [Reuters]
