Wednesday Crude Prices Soft but More Voices Join Talk of $100/bbl Oil

Some think sentiment will govern prices in the near term. File Image / Pixabay

If anyone doubted that the crude market was driven by sentiment, Wednesday's trading activity compared to the previous two sessions proved once more that short-term scares and not the logic of bigger picture fundamentals is the sole reason behind price fluctuations.

A mere two days after Brent broke $81 per barrel due to the Organization of the Petroleum Exporting Countries (OPEC) saying no to output hikes, and one day after further gains as a reaction to U.S. president Donald Trump rattling sabres with OPEC, crude on Wednesday dropped 1 percent - this time because the Energy Information Administration reported an inventory build of 1.9 million barrels in the week to September 21.

Brent slid 39 cents to $81.48 per barrel, while West Texas Intermediate settled down 71 cents, or 1 percent, to $71.57 per barrel.

At least one analyst noted that sentiment could drive prices into the triple digits in the near term: Tim Fox, chief economist at Emirates NBD, told Bloomberg television, "Given the current conditions, with the expectations about the Iranian oil and all the uncertainty about that into the end of this year, you shouldn't bet against $100 necessarily; sentiment can continue to keep oil elevated I think in the short term."

He added, "Having said that, I think from a demand and supply position going forward, our sense will be that will stabilize at lower levels over time...over a longer period of time, we think slower growth will bring the price a little bit lower."

He concluded, "The short time dynamic is favouring more the sentiment move."

With traders' emotions running so high, it's unclear to what extent they would be calmed by a suggestion from Goldman Sachs that despite the geopolitical drama of the U.S. sanctions against Iran, the crude market may well be just fine.

The bank said in a report, "We continue to expect that the decline in Iran exports will reach 1.4 million barrels per day, and while it is occurring faster than we had previously expected, we continue to expect it to remain offset by a faster ramp-up in production from other producers.

"Brent prices will stabilize back in their $70-80/bbl range into year-end."

Meanwhile, both Commerzbank and Iran blamed Trump for the current state of prices, with the former declaring in a note that "the latest rise in oil prices is due primarily to Trump himself. ... he has focused the market's attention on the Iran sanctions again, even though the market is adequately supplied at present thanks to the increase in OPEC and Russian production."

In a similar frame of mind, Bijan Zanganeh, oil minister for the Islamic republic, said on Wednesday, "Mr. Trump is trying to seriously reduce exports of Iran's oil and also ensure the price of oil does not go up, but these two cannot happen together.

"If he wants the price of oil not to go up and the market not to get destabilized, he should stop unwarranted and disruptive interference in the Middle East and not be an obstacle to the production and export of Iran's oil."

Regardless of the drivers behind the recent price gains, not everyone is against oil in the $80s: earlier this week Ben van Beurden, CEO of Royal Dutch Shell, suggested crude at this level may be necessary to encourage spending on oil and gas infrastructure after a period of under investment.