Oil prices retreat on US inventory build, global demand woes

November 17, 2023 01:42 AM AEDT | By Investing
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Investing.com -- Oil prices retreated Thursday, weighed by indications of additional supply from the U.S., the world’s biggest producer, as well as worries of easing demand in China.

By 09:35 ET (14.35 GMT), the U.S. crude futures traded 3.1% lower at $74.31 a barrel, while the Brent contract dropped 3% to $78.75 a barrel.

U.S. EIA inventories surge

Data from the U.S. Energy Information Administration, released on Wednesday, showed that U.S. crude stocks rose by far more than expectations.

U.S. crude production also held steady at a record 13.2 million barrels per day, suggesting the world’s top producer may be near peak output.

“The EIA’s weekly inventory report made a comeback yesterday after its absence last week due to a planned system upgrade,” said analysts at ING, in a note. “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.”

“While this still leaves stocks below the 5-year average, they are trending back towards more typical levels for this time of year.”

Chinese economic recovery eyed

Also weighing on sentiment was the news that Chinese refiners processed lower amounts of oil in October than the prior month.

China is the largest importer of crude in the world, and the fragile recovery of its economy has created concerns about the growth of demand this year.

Both the Organization of Petroleum Exporting Countries and the International Energy Agency, with both agencies forecast this week, in their monthly reports, that Chinese oil demand will remain strong in the coming year.

Data this week, including retail sales and industrial production numbers, have provided some optimism that a recovery may be gaining strength, even as the country’s important property sector remains in crisis.

Economic growth concerns remain

That said, the economic news out of Europe, another major consuming region, remains weak.

The European Commission on Wednesday cut its growth forecast for the eurozone in 2023 to 0.6% from the 0.8% expected in September, citing high inflation, rising interest rates and weak external demand.

Additionally, both industrial and manufacturing production slumped in the U.S. in October, while weekly jobless claims rose more than expected.

U.S. to enforce Iranian sanctions

In the Middle East, with the Israel-Hamas conflict appearing to be escalating in Gaza, the U.S. administration has vowed to enforce oil sanctions against Iran, the country which has long supported Hamas.

“While U.S. sanctions have remained in place, the U.S. has not enforced them strongly, which has allowed Iranian oil exports to grow this year,” said ING. “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.”

(Ambar Warrick contributed to this article.)

This article first appeared in Investing.com


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