But OPEC warns that production investment is crucial to avoid a global supply crunch: File Image/Pixabay
Despite an impending global supply crunch that has supported crude prices of late and all indications that demand will rise strongly moving forward, oil on Wednesday continued to decline, reportedly based on worries that the demand won't be as robust as analysts believe.
After it was reported that U.S. crude oil, gasoline and distillate inventories rose last week, Brent dropped $1.03 or 1.3 percent at $78.06 per barrel by 0130 GMT.
West Texas Intermediate fell $1.02 or 1.4 percent to $74.27 per barrel.
John Kilduff, founding partner, Again Capital
This dollar strength has reached a level that can't be ignored
According to unnamed sources citing data from the American Petroleum Institute, crude stocks rose by 4.1 million barrels for the week ended September 24, gasoline inventories rose by 3.6 million barrels, and distillate stocks rose by 2.5 million barrels.
Still, overall, the consumption trend globally is healthy, and the Organization of the Petroleum Exporting Countries (OPEC) warned that because demand is expected to rise sharply over the next few years, the world needs to keep investing in production to avert a crunch even as it transitions to alternative forms of energy.
That said, sources claim OPEC will stick to its existing deal to add 400,000 barrels per day (bpd) to its output for November when the cartel meets next week to discuss the matter.
Oil prices on Wednesday were also said to be negatively affected by China's weakening housing market and growing power outages; additionally, a stronger U.S. dollar made exports of the commodity less attractive to investors, and John Kilduff, founding partner at Again Capital, remarked, "This dollar strength has reached a level that can't be ignored."
As usual, analysts disagreed on the potential for oil to achieve further gains in the weeks and months ahead: Gina Sanchez, chief market strategist at Lido Advisors, told media that upside potential may be exhausted because "The [oil] spike is predicated on disruptions in supply meeting this big demand and those tend to happen in very sudden moments and will work themselves through: energy prices go up quickly, and come down slowly, exactly the opposite of the stock market."
Taking the opposing view, John Petrides, portfolio manager at Tocqueville Asset Management, argued that "I don't think you've missed the rally in energy and the fact that the price of the commodity has gone up 100 percent but the stocks really haven't followed as much," and he cited as a particularly attractive stock Kinder Morgan.