Published: Thu, October 18, 2018
Money | By Ethel Goodwin

U.S. crude slumps below $70/bbl after large stock build

U.S. crude slumps below $70/bbl after large stock build

U.S. West Texas Intermediate crude was 72.17 dollars a barrel on Wednesday while Brent crude was, 81.77 dollars a barrel. The global benchmark, which hit a more than two-week low late last week as equity markets dropped, is trading around $5 below a four-year high of $86.74 marked on October 3.

The unhinged bullishness at the end of September and early October was stoked by fears that Saudi Arabia and Russian Federation won't be able to fill in the gap that US sanctions on Iranian oil have been opening up.

USA crude inventories fell by 2.1-million barrels last week, compared with analyst expectations for a build of 2.2-million barrels, American Petroleum Institute (API) data showed after Tuesday's settlement.

In WTI, wagers on falling prices have increased as USA inventories piled up, and concerns about constrained Permian takeaway capacity and the build-up of stocks have prevailed over the past few weeks.

Oil had been rising on worries about Iranian sanctions and tensions between the United States and Saudi Arabia after the death of Saudi journalist Jamal Khashoggi. That was down from at least 2.5 million bpd in April before U.S. President Donald Trump withdrew from a multi-lateral nuclear deal with Iran in May.

It's not yet clear to what extent, if any, China will curb shipments of Iranian crude due to US sanctions. "As Saudi Arabia increases production, spare capacity is still dropping, so you can see why the market's still sensitive to potential supply shocks".

"The focus within the oil trade during the next couple of weeks is likely to be on Iran and Saudi Arabia".

The breakdown of the talks is equivalent to the Saudis and Kuwaitis agreeing to cut production by 500,000 barrels a day, said Phil Flynn, senior market analyst at Price Futures Group.

"That's a negative for oil prices right now, the larger-than-expected build in inventories this week", said Rob Thummel, managing director at Tortoise, which manages $16 billion in energy-related assets.

New U.S. sanctions on Iranian oil exports start on November 4, while Iran has accused Saudi Arabia and Russian Federation of breaking an OPEC-led agreement on output cuts by producing more crude. "Saudi Aramco's desire is also to invest in consumer-facing segments such as retail fuels and petrochemicals, building an integrated downstream business spanning India as well as our commitment to invest in crude oil storage here in India in order to be more responsive and closer to the demand needs".

US gasoline stockpiles fell by 2 million barrels last week, while distillate stockpiles declined by 800,000 barrels, according to the EIA.

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