Oil prices decline on rising U.S. stockpile

Oil prices decline on rising U.S. stockpile

Oil prices dropped on Wednesday after the USA government reported an unexpected increase in crude and gasoline stockpiles, but an increase in refining runs and a drawdown in distillates helped prices bounce off session lows.

Brent for January settlement dropped 34 USA cents to end the session at US$61.87 a barrel on the London-based ICE Futures Europe exchange.

The IEA's outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue. "The drop was arguably exacerbated by a global selloff in other commodities", said Sukrit Vijayakar, director of energy consultancy Trifecta.

"Alongside an ever-expanding global population and the critical importance of reducing energy poverty, these growth rates mean energy demand is expected to increase by close to 100 million barrels of oil equivalent a day between 2015 and 2040", Barkindo said.

"Using a scenario whereby current levels of OPEC production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18", the agency said.

The IEA, meanwhile, delivered a surprisingly downbeat outlook for oil demand in its monthly market report, showing an expected slowdown in consumption that was at odds with a more bullish view from the producer group OPEC on Monday.

The IEA report countered the Organization of Petroleum Exporting Countries, which just a day earlier said 2018 would see a strong rise in oil demand.

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"This is why, absent any geopolitical premium, we may not have seen a "new normal" for oil prices", the IEA said.

Oil inventories in the world's richest nations fell by 40 million barrels in September, breaking below 3.0 billion barrels for the first time in two years, driven in part by Hurricane Harvey, which shuttered much USA refining capacity in August.

The data also showed distillate stocks in the U.S. Gulf fell to a one-year low, while overall refining rates rose in the latest week, led by a jump in East Coast refining, which is operating at a record 99.8 percent of capacity.

The largest disruptive force to supply will be shale production in the USA - the IEA estimates U.S. crude oil will reach peak output in the 2020s of around 17m bpd.

Meanwhile, domestic USA oil output rose by another 25,000 barrel a day to 9.645m b/d.

In May, Opec producers agreed to extend production cuts for a period of nine months until March, but stuck to production cuts of 1.2 million bpd agreed in November previous year.

The U.S. benchmark slipped 0.7 percent on Wednesday as Russian Federation believes it's too early to announce a possible extension at OPEC's meeting at the end of the month, according to two people with knowledge of the matter. The deal expires in March 2018 but OPEC will meet on November 30 to discuss policy, and it is expected to agree an extension of the cuts.

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