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Crude Oil Price Slumps on Small Decrease in Stockpiles

Crude Oil Price Slumps on Small Decrease in Stockpiles

Oil prices held steady on Wednesday, supported by a report of rising US crude inventories as well as the introduction of sanctions against Iran.

The prices of both Brent and West Texas Intermediate (WTI) dropped by over 2.5 percent on Wednesday morning following the reported draw of crude oil inventory by U.S. Energy Information Administration.

Furthermore, oil prices were dragged down by the increasing output of the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation. These sanctions did not include Iran's oil exports. Oil production is down 45.8% to 1.3 million barrels per day since the end of 2015.

The reimposed sanctions target Iran's US dollar purchases, metals trading, coal, industrial software and its auto sector. Oil prices started the week with gains due to the focus on supply disruptions and a potential impact of US sanctions on Iranian crude oil output. A second tranche coming into effect on November 5 will cover Iran's oil sector.

Ahead of the return of the US sanctions on Iran, India's state refiners boosted their Iranian oil purchases, pushing up Indian oil imports from Iran by 30 percent from June, to a record 768,000 bpd in July, according to preliminary tanker arrival data that Reuters has obtained from trade sources.

The real negotiations now take place between Riyadh and Moscow, behind closed doors and far away from OPEC headquarters in Vienna, reflecting their market calculations, and relationships with the United States.

Oil prices have for the most part already priced the Iranian sanctions in.

"The U.S. -China trade war is set to worsen, and its impact on oil prices will be gradual as the situation develops", said Abhishek Kumar, senior energy analyst at Interfax Energy in London. "The reports that Saudi Arabia's production actually dropped in July continue to provide support for the market". "We had been regularly taking spot cargoes but are now also looking at tender-term deals where monthly cargoes can be booked through a tender purchase", he said. Instead, support came in the form of macroeconomic data which continues to point to slow but steady growth in United Kingdom economy such as a 5% increase in consumer spending in July and a rise in house prices of 1.4% in July. A weak dollar can lift the price of commodities, like oil, that are priced using the currency.

US investment bank Jefferies contributed to the analytical concerns by stating in a note that, "the Saudi and Russian production surges appear to be more limited" than expected.

Crude inventories USOILC=ECI fell by 1.4 million barrels in the last week, the EIA data showed, compared with analysts' expectations for a decrease of 3.3 million barrels. Some analysts warned that a global heat wave could also now affect oil demand.

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