Oil Plummets On U.S. Stock Build, OPEC Refusal To Boost Output

Meanwhile, Iran says nuclear talks will resume at the end of November: File Image/Pixabay

Despite overwhelming evidence that strong global demand recovery will continue for the foreseeable future regardless of the pandemic, sentiment governed crude trading on Wednesday, with two key benchmarks dropping the most in nearly two months on reports of a U.S. stockpiles build and Iran claiming that nuclear talks will resume on November 28.

West Texas Intermediate fell $3.05 to settle at $80.86, while Brent dropped $2.73 to $81.99 per barrel.

The Energy Information Administration on Wednesday revealed that crude inventories rose for a second week to 3.29 million barrels; relatively overlooked was that gasoline inventories fell to the lowest since November 2017, with demand outpacing where it stood from 2015 to 2018 at this time of year.

As for concern over Iran, a nuclear deal (which is still regarded in western political circles as fraught with hurdles) is regarded as a step toward lifting U.S. sanctions on Iranian oil – which, Wednesday's collective trading sentiment notwithstanding, is viewed by some analysts as a potential relief to the impending global energy crunch.

Factoring into all of this is the notion that high prices are encouraging more supply elsewhere: BP said  it will ramp up investments in its onshore U.S. shale oil and gas business to $1.5 billion in 2022 from $1 billion this year.

Meanwhile, more trepidation greets Thursday's meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, the general expectation being that the cartel will maintain its stance of adding just 400,000 barrels per day (bpd) of idle supply each month and leaving the market in deficit for the rest of the year.

Bloomberg pointed out that "One reason for OPEC+ resistance is the risk that, if the extra oil were supplied, it could tip markets swiftly in the other direction: supply is tight now, but the balance is expected to shift back into surplus early next year."

Given that U.S. president Joe Biden has been one of the most vocal of an international cadre of critics trying to sway OPEC, Helima Croft, commodities strategist at RBC Capital Markets, on Wednesday suggested that  "We think the Biden administration is prepared to release crude from the Strategic Petroleum Reserve in an effort to cap prices."

For his part, John Kemp, commodities analyst at Reuters, offered  two scenarios regarding the state of the market: "If oil prices stop climbing, or at least start rising more slowly, it will filter through into slower inflation and lower inflation expectations, which would comfort policymakers as well as investors, businesses and households.

"If they do not, both realised and expected inflation are likely to accelerate further, increasing the probability that central banks will have to start boosting interest rates earlier and further than planned and increasing the probability of a mid-cycle slowdown if not a premature end to the current expansion."