Crude Oil Falls Sharply After US Inventory Build Continues

Sean Reid
October 26, 2018

Oil is poised for the worst monthly decline since July 2016 as ongoing trade tensions stoke concerns over global energy demand at a time American crude stockpiles are increasing. What's going on here and what to expect from crude oil now?

Last month, the price of crude oil rose sharply as investors braced for low supplies after Iran's oil is cut off.

Recent moves in Brent crude illustrate this contradiction.

Asked whether he has any objectives in mind for the deal signed in December and whether supply will be cut or increase for a certain period, Falih admitted there are many uncertainties about 2019 that it is very premature to say what will be done. United States crude dropped 30c to $66.13.

While OPEC said in a statement out Thursday that it was satisfied with developments in the oil market, it also cited a potential buildup of supply.

The US sanctions have made Iran wary of losing market share to other members of the Organization of Petroleum Exporting Countries (OPEC). Total non-OPEC participation is 20 million barrel per day (bpd), but Russian Federation alone gives 11 million bpd.

"Saudi Arabia produces only what its customers ask for, not more".

According to the EIA's report, US crude oil refinery inputs averaged 16.3 million barrels per day during last week, which was 48,000 barrels per day less than the previous week's average.

The October STEO assumes that the effects of sanctions will increase during the first few months of full implementation and that Iran's average crude oil production (excluding condensate) in 2019 will fall by approximately 1.0 million barrels per day (b/d) from Iran's April 2018 production level of 3.8 million b/d. In 2017, spare production capacity was 2.1 million barrels per day.

Trade wars, weakening emerging markets and currencies, and the strengthening USA dollar began to overshadow market fears that OPEC leader Saudi Arabia, non-OPEC leader Russian Federation, and their partners in the production cut deal may not be able to offset the loss of Iranian barrels and continuously falling production in Venezuela. Also, OPEC's September output was 850,000 barrel per day above where it was in May, not including Congo, while Russia's production in September is up 390,000 barrel per day from May, according to Platts survey data.

Uncertainty over future Iranian exports remains high.

Oil prices rose modestly on Wednesday, rebounding after several days of weakness as a much bigger-than-expected drawdown in USA gasoline and diesel inventories augured a seasonal increase in refining demand.

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