Oil Drops Again on Stockpile Builds While Iran Fears Said to be Played Out

Oil drops again. File Image / Pixabay

Rising crude stockpiles caused crude prices to once again drop considerably on Thursday, contributing to an 11 percent plunge over two weeks and effectively neutering the two biggest geopolitical issues that had preoccupied analysts of late: the Iran sanctions and U.S./Saudi Arabia tensions.

West Texas Intermediate crude ended Thursday's session down $1.10 at $68.65, while Brent decreased 67 cents to $79.38 per barrel, again on the strength of government data released the day prior showing that U.S. crude inventories had risen 6.5 million barrels last week, the fourth straight weekly increase and almost three times what analysts had forecast.

Olivier Jakob, oil analyst at Petromatrix, remarked, "Stocks are building, it's a continuous trend: week after week, it does start to add up."

To which Bjarne Schieldrop, chief commodities analyst at SEB AB, added, "Stocks are rising in the U.S., and the reason is because pipes out of the U.S. for exports are maxed out while U.S. production is rising."

More important was an observation made by analysts at JBC Energy in a report: "Assuming that Iranian crude exports will stabilize around 900,000 barrels per day (bpd), one can make a strong case that the peak bullish impact of Iran is in fact already behind us."

Aside from rising stockpiles, Matt Smith, director of commodity research at ClipperData, cited other reasons why oil prices have fallen so steeply and so fast, including Brent crude's spike above $86 two weeks ago sparking fears that the high cost of oil would start to erode demand for the commodity; and investors dumping risk assets in a sell off last week (he noted that during the two-day stock market rout alone, crude futures fell by more than 5 percent).

He also noted that traders got ahead of themselves in pricing in the fear associated with the ongoing decline in Iranian exports.

All but forgotten by the crude market is the issue that has become a cause celebre for media in general: the rising U.S./Saudi Arabia tensions over the disappearance of dissident journalist Jamal Khashoggi: despite veiled threats from the kingdom that it will cut output to push prices higher in retaliation for the U.S. implicating the Saudis in the disappearance, the market is reportedly deeply skeptical that it would actually do so.

John Kilduff, founding partner at Again Capital, remarked, "That would be such a departure from their stated policy and stance towards the oil market; it's so much against their interest to do it."

A much bigger concern in the developing bearish profile of the crude market is the trade spat between the U.S. and China: Gene McGillian, vice president of market research for Tradition Energy, said, "The real driver of this correction is concerns surrounding demand growth and trade issues; the world has backed off its highs."

But as forceful as these remarks may be, and despite oil seeming to be on a downward curve, emotionally-charged traders could just as easily send prices skyrocketing based on sentiment: Trafigura executives earlier this week played into that weakness by stating they don't believe crude producing nations will be able to comfortably fill the gap in supply caused by the Iran sanctions, and that this will contribute to more upward pressure on global prices.