Oil Resumes Downward Plunge As Bearish Stance Seems Impervious To Market Developments

Meanwhile, Wells Fargo predicts depressed prices for oil in 2025: File Image/Pixabay

The unexpected gains made by oil in the previous session may have proved to be a blip as traders on Wednesday resumed their bearish behaviour and caused prices to drop over 2 percent, motivated primarily by easing tensions in Libya and concern about demand in China.

Brent settled down $1.71, or 2.2 percent, at $73.46 per barrel, while West Texas Intermediate settled down $1.87, or 2.6 percent, to $69.69 per barrel.

Libyan factions on Wednesday announced they had reached a "compromise" on appointing new leadership for that country's central bank, a move that could lead to the resumption of recently halted oil production – and exacerbate concerns of middling consumption in various countries and a potential supply glut.

As for China, the optimism displayed by oil traders in the previous session for that country's government promising more monetary stimulus to energize its economy effectively evaporated.

For the record, traders also reportedly maintained concern that Middle East hostilities would broaden and lead to supply shortages, suggesting that bearish sentiment would prevail no matter what market developments would occur.

Accordingly, Wednesday's news from the Energy Information Administration that U.S. crude inventories declined by 4.5 million barrels for the week to September 20 compared with a draw of 1.6 million barrels for the previous week failed to affect trading's downward trajectory.

Gasoline inventories dropped by 1.5 million barrels in the reporting period, with production standing at an average 9.8 million barrels daily.

Joe DeLaura and Florence Schmit, analysts at Rabobank, concluded in a report, "The market remains at risk of a supply glut if OPEC+ proceeds with plans to return some of its sidelined production; geopolitical issues in the Middle East still support upward price risk in the long term."

Finally, Wells Fargo contributed to Wednesday's gloom by predicting that oil prices will remain lower through 2025 due to an elevated risk of a global oversupply, brought on by persistent growth of U.S. shale production as well as slowing demand from key economies such as China.

The bank now expects Brent to average $70 per barrel and West Texas Intermediate to average $65 per barrel in 2025.