Wednesday July 17, 2024

Oil prices fall amid US production, China energy concerns

US oil stockpiles increased by 3.6 million barrels last week to 421.9 million barrels

By Web Desk
November 16, 2023
An oil plant located in the United States. — AFP/File
An oil plant located in the United States. — AFP/File

In response to indications of increased production in the US and prospects of poor energy demand in China, investors in New York responded by sending oil prices down more than $3 a barrel on Thursday, prolonging losses from the previous session.

Brent futures had dropped $2.60, or 3.2%, to $78.58 a barrel. West Texas Intermediate (WTI) oil in the United States dropped $2.65, or nearly 3.5%, to $74.01 by 1526 GMT. In the preceding session, both benchmarks had a decline of over 1.5%.

Additionally, under a contango structure, WTI's front-month contract traded below the price for the second month.

"Clearly, the decline in crude oil prices and the weakening of the structure is an ominous sign; one that implies an oversupplied physical market," said Tamas Varga of oil broker PVM.

"Whether a drop of this magnitude is fundamentally justified remains a question, but the financial firepower of New York tends to exaggerate sentiment," he told Reuters.

Although the International Energy Agency (IEA) and OPEC had both forecast supply constraints in the fourth quarter, US statistics released on Wednesday revealed ample stocks.

US oil stockpiles increased by 3.6 million barrels last week to 421.9 million barrels, according to the government's Energy Information Administration. This figure is significantly above experts' predictions based on a Reuters poll.

The United States continued to produce a record 13.2 million barrels of oil per day (bpd).

According to Varga of PVM, October inflation figures from the US, the UK, and the eurozone were possibly optimistic.

October saw a further uptick in Chinese economic activity as retail sales grew above forecasts and industrial output expanded at a higher rate.

"The current price drop is taking place amid a seemingly auspicious backdrop, which suggests that investors simply do not buy into the ‘Q4 stock draw’ narrative; something that is not backed up by the recent weekly EIA reports either," said Varga.

A predicted decrease in the throughput of Chinese oil refineries is one of the causes that is causing investors to hesitate. Runs decreased from their peak in September to October due to a decline in the market for industrial fuels and a narrowing of refining margins.

The United States said on Wednesday that it will impose oil sanctions on Iran, a country that has traditionally supported Hamas, as the Israel-Hamas crisis in Gaza seemed to be intensifying.