Oil prices had dropped for the third consecutive day on Thursday, pulled down by a larger-than-expected stock build up by the US and easing supply concerns.
Brent crude oil future contracts are down by 0.35% or 30 cents, to $85.52 per barrel, while that of US WTI future contracts dropped by 0.5% or 42 cents, to $83.07 per barrel. Both of the benchmarks have given away most of the first-week gains after it slipped by more than 2% in the previous session.
If we look at the US crude oil stock, it has stacked up by almost 12.9 million barrels, according to the market sources citing American Petroleum Institute. This was much higher than the expectations of 500,000 barrel increase, as polled by Reuters.
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Likely factors
An ING analyst said in a client note that, “unlikely to help sentiment this morning are API inventory numbers…Lower refinery run rates due to maintenance likely contributed to this build.”
Furthermore, gasoline stockpile has also swelled by 3.6 million barrels, which is in stark contradiction of the analysts expectations of 800,000 barrels decline.
Both of these figures are fueling up the worries of slowing fuel demand in the US. as an analyst at JP Morgan said in his client note that, “fuel prices might be closer to consumers’ pain threshold than inflation-adjusted prices might suggest. We are already experiencing signs that consumers have responded back by cutting on fuel consumption.”
They further added that, in the PADD 5 California is the biggest consumer, and had reduced its gasoline demand by 100,000 barrels per day from June to September, going even further down to a 7-month low of 1.46 million barrels per day.
Later in the afternoon, markets will be awaiting more clarity on the inventory data from the US Energy Information Administration (EIA).
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In the Global perspective
In other parts of the world, oil prices had already dropped on easing supply concerns and the current market situation in the Middle East is pushing petroleum prices further down the hill. An ANZ analyst said that, “the crude oil extended losses on signs the impact of the Israel-Hamas war on the oil market will be limited.”
Other analysts are also of the view that the risk premium will largely erode with the conflict restricting to Israel and Hamas only.
Moreover, the US EIA is expecting global oil inventories to fall further in the second half of 2023, however, it won’t reflect in lowering prices by much extent. The lower inventories, which will keep the global supply of petroleum below the consumption, will fuel up the oil prices by a few degrees to $94 per barrel in 2024.
According to the EIA estimates released on Wednesday, global oil inventories are expected to reduce by 200,000 barrels per day in the second half of 2023 amid voluntary cuts imposed by Saudi Arabia and reduced overall production across the OPEc+ region.
Oil prices have remained volatile in recent days, due to voluntary production cuts by Saudi Arabia and Russia, while high inflation across the globe have placed the demand expectations in question.
