Discredited News Story Causes Tumultuous Crude Trading, Price Losses

Meanwhile, the Saudi output cut will not boost oil significantly, IEA says: File Image/Pixabay

Confusion over a news report that stated the U.S. and Iran were approaching a deal on oil exports caused a roller coaster ride for crude trading on Thursday, with the commodity ultimately suffering  losses of almost 2 percent. 

Earlier in the session Brent dropped as much as $3 when the White House declared that news of the deal (which was published on the Middle East Eye website) was false; however, losses were pared somewhat on subsequent scepticism that oil sanctions would be lifted quickly.

This, combined with a larger than expected rise in U.S. gasoline inventories, resulted in West Texas Intermediate falling $1.24, or 1.71 percent, to $71.29 per barrel.

Brent settled down 1.29 percent at $75.96 per barrel.

Rebecca Babin, a senior energy trader at CIBC Private Wealth, called Thursday’s trading an “overreaction” and added that “the price action demonstrates just how quickly crude can turn lower while it struggles to move higher even when there are positive developments.”

It was unclear what positive developments Babin was referring to other than the hopes in some quarters that negotiations between the U.S. and Iran are ongoing.

Unfortunately, Thursday saw a continuation of gloomy sentiment, with the U.S. Energy Information Administration stating in its latest Short-Term Energy Outlook that oil prices will not average more than $80 per barrel in the second half of this year, despite the most recent production cut announced by Saudi Arabia.

This was presumably bad news for the Saudis, who it was said need a price of almost $81 per barrel to balance its books this year after vowing to lower output to 9 million barrels per day (bpd),

The EIA went on to predict that producers other than members of the Organization of the Petroleum Exporting Countries (OPEC) will drive global liquids production to growth of 1.5 million bpd in 2023 and 1.3 million bpd in 2024, limiting the upside for oil prices.

As for consumption, the EIA said it will rise by 1.6 million bpd this year, and by another 1.7 million bpd next year; however, “Significant uncertainty remains around global economic growth and the potential impact on oil demand over the forecast period.”