Oil Prices Decrease over Demand, Supply Uncertainties
Uncertainties in the global commodities market refuse to fizzle out, and this has resulted in a decline in the prices of crude oil. The oil market activities hang between rising US crude oil inventories and supply tightening following Russian export sanctions.
US inventories surge, and floating storage in Asian waters has doubled in recent weeks as tighter Western sanctions curb imports to China and India.
Oil prices are tracking lower on Tuesday even after Russia’s Lukoil declared force majeure on its operations in one of Iraq’s biggest oil fields because of the latest U.S. sanctions.
Brent fell to $63.84 per barrel, with West Texas Intermediate selling at $59.89 per barrel, as reports suggest record high volumes of oil in floating storage.
Prices are down as excess supply fear now outweighed uncertainty over the impact of U.S. sanctions on Russian oil majors Rosneft and Lukoil.
In addition, Indian refiners have shifted toward sourcing barrels from the Middle East and the Americas to replace sanctioned Russian supply.
In October, US President Donald Trump placed Lukoil, Russia’s second-largest oil producer, and its subsidiaries under sanctions, citing a “serious lack of commitment” to the peace process aimed at ending the war in Ukraine.
Lukoil, which accounts for about 2% of global oil output, said on Oct. 27 that it would divest its international assets in response to the US move.
The company announced on Oct. 30 that it had reached a deal to sell its holdings to Gunvor Group, but the US Treasury Department declined to approve the transaction, prompting Gunvor to withdraw its offer.
Last week oil prices drop were primarily driven by renewed oversupply concerns, after U.S. crude inventories rose 5.2 million barrels, far exceeding expectations, according to the Energy Information Administration (EIA).
The build was attributed to higher imports and reduced refinery activity. Meanwhile, ongoing Western sanctions on Russia and Iran have led to record volumes of oil being stored at sea, disrupting trade patterns but mitigating the immediate risk of a global supply glut.
Notably, the U.S. embargo on Rosneft and Lukoil continues to tighten traditional supply channels, adding volatility to the current market sentiment.
Crude prices briefly rebounded from a midday dip last week amid mild optimism that Hungary would be permitted to maintain access to Russian crude, following a meeting between U.S. President Donald Trump and Hungarian Prime Minister Viktor Orban at the White House.
In the near term, crude prices are expected to face sustained downward pressure as elevated U.S. inventories signal weakening refinery demand amid market oversupply.
However, the tightening impact of sanctions on Russia’s Rosneft and Lukoil, alongside continued logistical disruptions from Iran’s export constraints, should temper a deeper correction.
Market sentiment will likely hinge on the pace of destocking and clarity around Europe’s stance on Russian crude exemptions, particularly following Hungary’s negotiations.
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