Crude oil prices staged a hesitant recovery early on Thursday after the EIA’s latest inventory report sparked a massive drop in both WTI and Brent. Oil prices were already trending lower at the start of the week due to a combination of profit-taking and economic concerns, but reports of weak U.S. gasoline demand seemed to burst the bullish bubble.
In the latest weekly petroleum report, the U.S. Energy Information Administration reported a build in crude oil inventories but a substantial increase in gasoline inventories. The report claimed gasoline demand had collapsed to eight million barrels per day, but GasBuddy’s Patrick De Haan suggested that was likely an underestimate.
The dramatic drop in prices that followed the EIA’s report saw oil prices hit the lowest level in weeks. Unless they recover sharply later today, chances are the benchmarks will book a large loss this week.
Just before the EIA’s report was released, OPEC+ confirmed it would stick to its production cap policies, an announcement that should have added to oil’s upward potential.
Saudi Arabia and Russia, the key OPEC+ partners, also said on Wednesday they would maintain their voluntary production and export cuts in November, and review the decisions next month to decide if the cuts should be deepened or eased.
The reaction of oil markets to this news would suggest a larger underlying shift in sentiment rather than a direct reaction to gasoline demand alone.
"The three-month rally in crude oil prices has been riding on the narrative of tighter supply dynamics and resilient global economic conditions, so there is some discomfort for the bulls lately when the tailwinds were not as prominent as before," IG analyst Yeap Jun Rong told Reuters.
“We could still see spikes in oil prices in the fourth quarter amid concerns of a deficit, but going into 2024, recession concerns could grow louder and cap gains,” Saxo Capital Markets analyst Charun Chanana told Bloomberg.
It remains to be seen just how fundamental this shift in sentiment is, but at the time of writing WTI was trading at $84.31 while Brent was up slightly at $85.89.
By Charles Kennedy for Oilprice.com
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Despite concerted efforts from different quarters including manipulation of the US oil inventory aimed at depressing prices, I am sill betting on a Brent crude price of $90-$100 a barrel before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert