Brent Price Drops to $80 as US Crude Inventories Rise
Brent price declined by 0.5% to US$80.78 per barrel as US crude inventories rose. Also, West Texas Intermediate crude fell 0.5% to US$76.25 at last look early Thursday.
Crude oil prices declined after the US Energy Information Administration’s latest inventory report showed mixed signals on demand.
Also, oil came under pressure yesterday with ICE Brent settling 1.56% lower on the day – a fourth consecutive week of builds in US crude oil inventories pressure on the market.
The builds have also been enough to push the prompt WTI time spreads back into contango, ING commodities strategists said in a Thursday note.
The EIA’s weekly inventory report made a comeback yesterday after its absence last week due to a planned system upgrade.
The release showed that US crude oil inventories increased by 3.59MMbbls over the last week to a little over 439MMbbls – the highest since August.
ING strategists said this is after a 3.9 MMbbls build in the previous week. While this still leaves stocks below the 5-year average, they are trending back towards more typical levels for this time of year.
On the product side, gasoline inventories fell by 1.54MMbbls last week, after they fell by 6.31MMbbls the previous week. Similarly for distillate fuel oil, stocks declined by 1.42MMbbls, which follows on from a 3.29MMbbls draw the week before.
The draws on the product side come despite a small uptick in refinery utilisation rates with stronger implied demand for the week ending 3 November.
Meanwhile, activity data from China yesterday showed that refiners processed around 15.11MMbbls/d of crude oil in October, which is down from 15.5MMbbls/d in the previous month, but up a little more than 9% year on year.
Cumulative refinery activity so far this year is up around 11.3%. The broader increase in refinery activity this year is no surprise given the recovery we have seen in domestic demand this year, along with refiners having received more export quotas.
The numbers suggest that apparent oil demand in October was 14.9MMbbls/d, down from 15.2MMbbls/d in the previous, but still up 11% YoY. Taking into account recent trade data, along with this set of activity data, Chinese crude oil inventories are estimated to have increased at a pace of a little less than 600Mbbls/d over October.
The US administration said that it would enforce oil sanctions against Iran following renewed tensions in the Middle East. While US sanctions have remained in place, the US has not enforced them strongly, which has allowed Iranian oil exports to grow this year.
“If we see stricter enforcement of these sanctions, we could possibly see anywhere between 500Mbbls/d-1MMbbls/d of supply lost, which would be enough to tighten up the global oil balance significantly through 2024”, ING strategists said in its note.
Offsetting any declines from Iran could be a marginal increase in Venezuelan supply (after the US eased sanctions) and the potential restart of Kurdish oil flows, which could bring in the region of 500Mbbls/d back onto the market.