Meanwhile, OPEC's minuscule production increase was met with widespread disappointment: File Image/Pixabay
The Organization of the Petroleum Exporting Countries (OPEC) agreeing to a minuscule output increase combined with more evidence of slowing demand were the main factors causing oil prices to plummet on Wednesday, this time by 4 percent.
OPEC and it allies agreed to produce an additional 100,000 barrels per day (bpd), a far smaller increase than previous hikes and the outcome of concern over the U.S. being in a technical recession and the potential for China's Covid lockdowns ruining demand.
Also, data from the U.S. Energy Information Administration showed that crude stockpiles rose by 4.5 million barrels and gasoline stocks gained 200,000 barrels; analysts had anticipated draws of 600,000 barrels and 1.6 million barrels respectively.
Bob Yawger, director of energy futures, Mizuho
You should never see a build in gasoline during summer
Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, said. "There had been hopes after last week's data that soft July demand data was reversing; this week's release will keep buyers on hold."
Bob Yawger, director of energy futures at Mizuho, added, "Gasoline is a disappointment, you should never see a build in gasoline during summer: it's a very bearish report."
As for OPEC's output boost, Stacey Morris, head of energy research at VettaFi, remarked, "The amount is so modest that it is a rounding error for global oil markets."
Wednesday's gloom was compounded by the disclosure that the premium for front-month Brent futures over barrels loading in six months' time is at a three-month low, which indicates concern about tight supply isn't as intense as it used to be.
West Texas Intermediate on Wednesday fell $3.76 to settle at $90.66 per barrel, while Brent declined $3.76 to settle at $96.78 per barrel.
Although oil prices have declined substantially, Amos Hochstein, the U.S. Department of State's senior advisor for energy security, thinks prices at the pump need to go lower.
He told Bloomberg television that while prices have declined by about $23 in the last six weeks, "we want to see lower prices, these are lower, but not low enough, and we're going to continue to try and do that," and he also implored OPEC as well as domestic producers "to increase production when possible."
But that wishful-thinking strategy could be easily compromised on many fronts, not the least of which involves Libya, whose output has risen in the past two weeks at more than 1 million bpd: Bloomberg noted that the political instability that caused state-owned NOC to radically downsize output could easily return, making it difficult to "keep crude flowing at today's levels, let alone reach the government's production target of between 2 and 2.5 million bpd within five years."
This view was shared by Illiasse Sdiqui, an associate director at risk-management company Whispering Bell: "It is a fragile-peace moment since political divisions have reached new highs; the NOC will likely retain its integrity for the months to come, but the current context is challenging for international oil companies operating on the ground."