Oil Plummets On Sudden Fears Of Rising Stockpiles

Ironically, a massive amount of U.S. capacity is going offline between now and year-end: File Image/Pixabay

Given that supply tightness concerns dominated trading habits throughout September, crude traders on Monday made a dramatic about-face and expressed sudden concern about rising supplies: one of several factors contributing to a drop in prices of about 2 percent.

Brent for December delivery settled down $1.49, or 1.6 percent, at $90.71 per barrel, while West Texas Intermediate settled down $1.97, or 2.2 percent, to $88.82 per barrel.

Traders were said to have been motivated by Turkey's energy minister announcing that his country will restart operations this week on a pipeline from Iraq that has been suspended for about six months; this was in addition to  concerns that Saudi Arabia might soon ease its additional voluntary supply cut of 1 million barrels per day (bpd), something that just last week was widely viewed as a welcome solution to dwindling stockpiles.

Another reason for Monday's losses was that traders reportedly took profits following widespread consensus that crude was in overbought territory (it had risen almost 30 percent in the third quarter); however, while that is ephemeral, more troubling was the impact of news that manufacturing data showed the euro zone, Germany and Britain remained in a downturn in September.

After stating "The global outlook is quickly taking a turn for the worse,” Edward Moya, senior market analyst at OANDA, noted that soaring bond yields also pressured crude prices on Monday.

Rebecca Babin, a senior energy trader at CIBC Private Wealth, added,  “Much of the physical market tightness has been priced in, and the most severe inventory draws may be behind us.”

For its part, Citigroup Inc. predicted Brent would sink to the low $70s per barrel next year as supply increases, thus causing a glut.

Not to be outdone in forecasting gloomy news, the World Bank on Monday pegged China’s growth in 2023 at 5.1 percent, up from 3 percent in 2022 but still representing a slowing growth pace since April; this was perceived as another factor that could erode demand.

Still, it was hard for analysts to fully appreciate the fears underscoring Monday’s crude trading, especially in light of reports that the U.S. will see almost 2.5 million bpd of capacity taken offline between September and December, described as the “heaviest” maintenance season since before the pandemic.

This was accompanied by the Energy Information Administration reporting that U.S. petroleum product exports hit nearly 6 million bpd in the first half of this year, up 2 percent from the same period of 2022.