OPEC Jitters Cause Oil To Drop By 2% Amid More Bearish Signals

Meanwhile, the Trump presidency may cause oil to drop below $60: File Image/Pixabay

Investor jitters leading up to Thursday's meeting of the Organization of the Petroleum Exporting Countries (OPEC) were said to be a main reason why oil prices took a 2 percent nosedive on Wednesday – despite a substantial stockpile draw in the U.S.

Brent settled down $1.31, or 1.78 percent, at $72.31 per barrel, while West Texas Intermediate settled down $1.40, or 2 percent, to $68.54.

It's unclear why the OPEC meeting was suddenly the focus of bearish sentiment, as it has widely been expected for some time that the cartel will agree to extend its output cuts for another three months, and nothing changed on Wednesday to modify that expectation.

Matt Smith, lead Americas oil analyst at Kpler, said, "While a delay to unwinding production cuts is expected, the rhetoric out of the meeting is going to have the biggest sway."

The Wall Street Journal reported that Saudi Arabia will likely lead the charge in keeping its oil production tight, and this caused Phil Flynn, senior market analyst at the Price Futures Group Inc., to state in a note that the motivation is "they will be rewarded in the future for their fiscal and production sacrifices……the Saudis must believe that demand will exceed current damped down expectations, they must expect that this demand increase will allow them to profit from a period of sustained higher prices for longer."

Meanwhile, the Energy Information Administration reported that U.S. crude stocks fell more than expected last week, by 5.1 million barrels, as refiners ramped up operations; however, gasoline and distillate stockpiles rose by more than expected (2.4 million and 3.4 million barrels respectively) during the week.

Rebecca Babin, senior energy trader at CIBC Private Wealth Group, said of Wednesday's trading that, "The failure of WTI to hold above $70 and its 50-day moving average reinforces these levels as resistance.

"Additionally, volumes today are significantly lighter than the 10-day average, indicating this could be a 'wait-and-see' market as we approach year-end."

In other oil news on Wednesday, a new survey from law firm Haynes Boone says banks are preparing for an oil price drop to below $60 per barrel by the middle of president-elect Donald Trump's new term; the 26 bankers surveyed expect WTI to drop to $58.62 per barrel by 2027.