Oil Declines Further on US Stock Build, Easing Supply Concerns.

In recent days, oil prices have experienced a notable decline, and this trend continued as supply concerns eased and the United States reported a significant buildup of petrol and crude stocks. This article delves into the factors contributing to this decline and the implications for the oil market.

Introduction

The global oil market is once again in the spotlight as oil prices continue to drop for the third consecutive day. This downward trajectory is primarily attributed to two critical factors: diminishing supply concerns and a substantial buildup of petrol and crude stocks in the United States. Let’s take a closer look at the key developments impacting the oil industry.

The Price Movement

As of 06:23 GMT, U.S. West Texas Intermediate crude experienced a decrease of 53 cents, accounting for a 0.63% drop, bringing the price to $82.96 per barrel. Meanwhile, Brent futures observed a reduction of 43 cents, marking a 0.50% decrease, with a price of $85.39 per barrel. These price drops come on the heels of a more than 2% decline in the previous session, causing both benchmarks to relinquish the majority of their early-week gains.

Surge in US Crude Stocks

One of the primary drivers of this price decline is the considerable surge in crude oil stocks within the United States. On a single day, these stocks increased by approximately 12.9 million barrels, a figure that significantly exceeded analysts’ expectations, which had predicted a much more modest increase of 500,000 barrels. This surprising surge has raised concerns in the market.

Contributing Factors

Analysts have attributed this unexpected buildup in crude stocks to lower refinery run rates due to maintenance. ING analysts noted in a client note that, “API inventory statistics are not likely to improve sentiment this morning…This build was probably caused by lower refinery run rates as a result of maintenance.”

Petrol Stockpile Increase

In addition to the surge in crude stocks, petrol stockpiles also experienced a sharp increase of 3.6 million barrels, contrasting with analysts’ expectations of an 800,000-barrel decline. This unexpected rise in petrol stocks has further fueled concerns about a slowdown in fuel consumption in the United States.

Impact on Consumers

The increase in petrol prices and the potential for reduced fuel consumption have implications for consumers. JP Morgan analysts stated, “Inflation-adjusted costs may not be as far from consumers’ pain threshold as fuel prices. In response, there are already indications that consumers are consuming less fuel.”

Specifically, in PADD 5, where California is the largest consumer, petrol demand dropped by 100,000 barrels per day between June and September, reaching a seven-month low of 1.46 million barrels per day.

Watchful Eyes on EIA Data

The market’s focus is now on further inventory data from the U.S. Energy Information Administration (EIA), expected to be released later in the day at 1500 GMT. These figures will be closely monitored to gauge the overall health of the oil market.

Geopolitical Factors

It’s worth noting that the oil market has been sensitive to geopolitical factors. Recent developments have suggested that concerns over the supply situation in the Middle East are subsiding. ANZ analysts stated in a client note, “Crude oil extended losses on signs the impact of the Israel-Hamas war on the oil market will be limited.” ING analysts also added, “The risk premium continues to erode with the conflict largely contained to Israel and Hamas.”

Positive Outlook

However, despite these challenges, there is a glimmer of optimism for the oil market. U.S. EIA anticipates that global oil inventories will continue to decrease in the second half of 2023. In a monthly report, they projected that reduced stocks would keep the global oil supply below consumption, a situation that could potentially lead to an increase in oil prices.

Conclusion

The oil market is navigating a complex landscape characterized by unexpected stockpile surges and evolving geopolitical factors. While recent events have led to a decline in oil prices, there is hope for a positive turnaround in the latter half of 2023. The market will closely monitor EIA data and global supply dynamics as it seeks stability and growth.