See-Saw Effect Pronounced as Oil Falls on China Worries Then Escalates on OPEC Hope

Trader worries about stock rise conflict with OPEC's shortage forecast: File Image/PixaBay

Another "surprise" build in U.S. crude inventories caused a near-1 percent drop in oil prices on Wednesday, fortified by trepidation within the trading and analytical communities that a new round of tariffs on Chinese goods might be imposed by Washington on Sunday.

Brent settled down 62 cents to $63.72 per barrel, while West Texas Intermediate fell 48 cents to settle at $58.76 per barrel.

In a turn of events that now seems to occur regularly, the Energy Information Administration on Wednesday reported that crude inventories rose 822,000 barrels last week, compared with analysts' expectations in a Reuters poll for a 2.8 million-barrel drop.

Gasoline inventories jumped 5.4 million barrels, more than double analysts' expectations.

John Kilduff, founding partner at Again Capital, remarked, "The inventory data was rather bearish when you consider the fall in refinery run rates and the cratering of gasoline demand."

While all eyes are on what will happen next with U.S./China relations, John Kemp, market analyst at Reuters, suggests India is almost as important a factor to consider.

On Wednesday he pointed out that "India's economy is suffering its worst cyclical downturn for more than a decade, which is weighing heavily on global oil consumption, and until the economy improves, prices are unlikely to see a sustained increase."

He supported his thesis by noting that between 2008 and 2018, India's oil consumption "increased at an annual average rate of just over 5 percent or an extra 200,000 barrels per day each year.

"The South Asian giant accounted for 15 percent of all the growth in petroleum consumption worldwide over the last decade; only China was a more important source of incremental demand."

It's worth keeping in mind that the crude market always turns on a dime, and preliminary reports for Thursday indicate that oil prices might rebound on the strength of the Organization of the Petroleum Exporting Countries (OPEC) defying common assumptions and forecasting a supply deficit next year.