Crude Slumps Due to Massive U.S. Inventory Build, as OPEC Tries to Counter Fears of Tightness Due to Iran

Mohammad Barkindo has declared that the market is well supplied. File Image / Pixabay

U.S. stockpiles rising by almost triple what analysts had forecast caused crude prices to drop substantially on Wednesday, with Brent down $1.31 to $80.10 per barrel and West Texas Intermediate plummeting $2.17 to $69.75 per barrel.

U.S. crude stocks rose 6.5 million barrels last week, the fourth straight weekly build, according to the Energy Information Administration - this despite crude production slipping 300,000 barrels per day (bpd) to 10.9 million bpd last week due to Hurricane Michael.

The rising tensions between the U.S. and Saudi Arabia that had caused crude prices to increase earlier this week proved not to be a factor on Wednesday, partly due to U.S. president Donald Trump now seeming to give the kingdom the benefit of the doubt in its declaration that it had nothing to do with the disappearance of dissident journalist Jamal Khashoggi.

However, Reuters noted that after Wednesday's price drop, WTI began creeping up early Thursday morning, by 17 cents, supported by lingering tensions over the Khashoggi affair.

However, all eyes are now on the next issue widely expected to cause major upheavals in the trading world, namely, the new U.S. sanctions on Iran's oil exports starting on November 4 - which has caused analysts to worry about tightening markets and skyrocketing prices.

Presumably anticipating the mounting panic in some quarters, Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), acknowledged that there is a "perception" of "increasing tightness" in the oil market, but he attributed it "largely, if not exclusively, to geopolitics."

He added, "There is no shortage of oil; the big producers both in OPEC and non OPEC have the capacity to continue to keep this market very wet," and he then reiterated that his cartel has "no price objective" but instead wants to keep the balance of supply and demand.

Two takeways from Wednesday's trading activity: first, the resiliency and determination of U.S. producers continue to undercut persistent arguments from the analytical community that American output has hit its peak and won't be able to help compensate for the loss of Iranian crude due to the sanctions.

Second, despite delivering inconsistent messages about the crude market, OPEC has steadfastly maintained that it will be able to withstand any losses from the sanctions and that its members are able to turn on the taps substantially; in fact, its most prominent member, Saudi Arabia, last week asserted that it already has accounted for declines in Iranian exports and that the only worry is that it will contribute to a global oversupply if it's not careful.