A gasoline stockpile build perceived as "a shock" coupled with the Group of Seven considering a drastically watered down price cap against Russia were said to be the main elements in oil prices on Wednesday taking another nosedive, this time by over 4 percent.
Brent settled down $3.57, or 4 percent, at $84.79 per barrel and West Texas Intermediate settled down $3.50, or 4.3 percent, to $77.45 per barrel after a European official said that the G7 nations are looking at a price cap on Russian seaborne oil in the range of $65-$70 per barrel, well above the former Soviet Union's cost of production.
Because production costs are about $20 per barrel, this would mean Russia could still make a profit selling its oil; also, insurers and shippers could simply make sure the cargoes they carry were sold below the cap price: if the cap was close to existing discount levels, Russia could claim it's conducting business as usual.
Meanwhile in the U.S., the American Petroleum Institute (which in the previous session reported a crude inventory drop of 4.8 million barrels) revealed that domestic gasoline stocks rose by 3.1 million barrels, far more than the analytical forecast for a 383,000-barrel build.
Phil Flynn, senior market analyst at Price Futures Group Inc., said, "The build in gasoline is kind of a shock: the increase in gasoline supplies suggests that maybe we're seeing demand weakening or that gasoline is going on the rack ahead of the holidays."
Another analyst, Tamas Varga at PVM Oil Associates, attempted to put a positive spin on another piece of dour news on Wednesday, that of an OECD economic outlook anticipating a deceleration in global economic expansion next year.
Varga said, "On the bright side, the OECD does not envisage a global recession and maybe this helped oil prices and stocks strengthen further."
Also in a positive mood on Wednesday was Conor Sen, an analyst for Bloomberg, who reminded readers that historically, soaring oil prices "have been bad for the U.S. economy because they squeeze consumers and producers, and often are happening when the Federal Reserve is raising interest rates to rein in inflation."
He added that given that oil prices are down 35 percent from peak highs, "prices are low enough that they're arguably boosting rather than detracting from growth.
"Recessions generally don't happen when worker incomes are growing and energy prices are falling — that's a good thing to remember at a time when there is so much negativity swirling around."
But in terms of fundamentals, Bloomberg on the whole was pessimistic and warned that "the U.S. oil futures curve flipped into a bearish market structure known as contango for the second time this month as traders shrugged off a bullish government report showing supplies at the key Cushing, Okla., storage hub shrank to a two-month low."
The news agency went on to point out that for financial traders, this could lead "to so-called negative roll yield, where investors tend to lose money when they roll a position forward from one month to the next."