Oil Slumps Despite Drawdown, As Resistance To Israel/Iran Hostilities Baffles Analyst

China's vague new housing policy also contributed to bearish sentiment: File Image/Pixabay

Confirmation of the first U.S. crude stockpile decline in three weeks did nothing to improve sentiment among traders on Thursday: oil prices continued downward, with only developments in the Middle East possibly acting as a temporary catalyst moving forward.

As of 1625 GMT Brent was down 16 cents to $74.06 per barrel, while West Texas Intermediate was down 5 cents at $70.34 per barrel.

Still, the Energy Information Administration confirming on Thursday that U.S. crude inventories fell by 2.2 million barrels to 420.6 million barrels in the week ended Oct. 11 buoyed Tim Snyder, chief economist at Matador Economics: he said, "This tells me operational efficiencies are still improving; markets are normalizing."

Markets seem to finally be normalizing elsewhere too: the European Central Bank on Thursday cut interest rates for the third time this year, an indication that inflation in the euro zone is now under control and the push is on to revive demand.

As for Israel's anticipated retaliation against Iran for a botched missile attack, Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, expressed frustration that the Middle East situation hasn't had more impact on trading.

He said, "Geopolitical risk is the highest in my 21 [year] career today, and yet there's no risk premium in the oil price; why is that? People believe: 'Well OPEC has all this spare capacity, they can just turn a couple of vowels and it's on the next day.'

"And so that's preventing oil from reflecting any semblance of the real risk that the world faces right now…if you look at where global oil inventories sit relative to demand, it would be suggestive of a Brent price today in the mid-eighties and we're very clearly not there today."

However, many other factors apart from hostilities in one part of the world are causing market malaise: China's housing sector plan announced on Thursday was said to have underwhelmed investors, causing ANZ Research to state in a note, "Without announcing a major shift in housing policy stance, [China's new] policy measure will not induce massive investment demand in real estate."