Oil prices plummeted on Thursday on a series of bearish market forces, led by thin liquidity and easing geopolitical tensions between Russia and the West when it became clear that the missile striking Poland earlier in the week did not come from Russia.
WTI prices fell nearly 5% on the day, to $81.76 per barrel at 11:52 am-the lowest level in more than a month. Brent crude prices fell 3% to $90.07-a drop of $2.79 since yesterday.
Paper markets are a major market force, which appear to be dumping with low volume and heightened margin requirements. There is a distinct reduction in open interest in the November oil contract-which is close to expiry-that is causing increased market volatility.
This is despite the healthy demand for physical crude oil.
This thin paper liquidity combined forces with easing geopolitical tensions after it was reported that the missile likely came from Ukraine, not Russia. It was originally thought that the missile likely came from Russia, which had sent oil prices higher on the news. But the spike was temporary, as has been the case as of late.
Further weighing on prices were concerns that crude oil demand could fall on renewed fears that China's struggle to get its Covid cases under control within its zero-Covid policy could have a deleterious-and chronic-effect on demand in the world's largest crude oil importer.
China reported 23,276 new covid cases on Wednesday, its National Health Commission said on Thursday, compared to 20,199 a day earlier. Related: Diesel Price Premium To Gasoline And Crude Hits Record High
In addition to easing geopolitical tensions and China's neverending Covid saga, JP Morgan's forecast this week that the United States will enter a recession next year thanks to the Fed's continued rate hikes, dampening the outlook for oil demand.
Rounding out the list of downward pressures is the rising dollar, with the dollar index DXY up 0.75%.
The bearish news has been more than enough to offset the low inventories in the United States, which saw a more than 5 million barrel draw in U.S. commercial crude oil inventories, along with a more than 4 million barrel draw in U.S. SPR inventories.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More