Oil Prices Decline Amidst U.S. Crude Buildup and Concerns Over China’s Demand
Oil prices experienced a slight decline on Thursday, continuing the losses observed in the previous session. This dip was attributed to indications of increased supply from the United States coupled with concerns about subdued energy demand in China.
As of 1101 GMT, Brent futures were down 23 cents, reaching $80.95 per barrel, while U.S. West Texas Intermediate crude (WTI) dropped 27 cents to $76.39. Both benchmarks had registered a decline of more than 1.5% in the preceding session.
Additionally, the front-month contract for WTI traded below the price for the second month, a market condition known as contango. This suggests that investors anticipate a future increase in prices. On Thursday, the front month’s discount to the second month was recorded at minus 17 cents.
“The decline in crude oil prices and the weakening of the structure is an ominous sign; one that implies an oversupplied physical market,” said Tamas Varga of oil broker PVM.
Concerns have heightened in the oil market, driven by the increase in U.S. crude stocks. The U.S. Energy Information Administration (EIA) reported a rise of 3.6 million barrels last week, bringing the total to 421.9 million barrels. This figure significantly surpassed the expectations of analysts surveyed by Reuters.
The unexpected surge in crude stocks adds to the apprehensions about oversupply in the market, contributing to the downward pressure on oil prices.
Despite concerns about oversupply, U.S. crude production remained constant at a record level of 13.2 million barrels per day (bpd).
The decline in crude prices contradicts recent assessments of global demand-supply fundamentals from both OPEC and the International Energy Agency (IEA), which anticipated supply tightness in the fourth quarter, according to Varga.
Moreover, Varga noted that October inflation data from major economic centers such as the eurozone, the United States, and the UK has been positive, contributing to the complexity of factors influencing crude prices.
Despite challenges in the property sector, China is exhibiting signs of economic recovery. In October, the country experienced an uptick in economic activity, with industrial output showing a faster pace of growth and retail sales surpassing expectations. These positive developments suggest some resilience in China’s economy, even amid concerns about the property market.
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“The current price drop is taking place amid a seemingly auspicious backdrop, which suggests that investors simply do not buy into the ‘Q4 stock draw’ narrative; something that is not backed up by the recent weekly EIA reports either,” said Varga.
Investors might be showing concerns due to an anticipated slowdown in Chinese oil refinery throughput. In October, runs declined from the previous month’s highs, influenced by weakened industrial fuel demand and narrower refining margins. This factor contributes to the broader apprehensions in the market, impacting investor sentiment regarding oil prices.
