Energy
Thursday, November 16th, 2023 6:35 pm EDT
Key Points
- Significant Drop in U.S. Crude Prices: U.S. crude oil prices experienced a notable decline of 5% on Thursday. The West Texas Intermediate (WTI) December contract fell by $3.84 to $72.82 per barrel, and the Brent January contract dropped $3.91 to $77.27 per barrel. Both benchmarks reached their lowest levels since early July.
- Factors Contributing to the Price Drop:
- Rising Crude Inventories: U.S. crude inventories increased by 3.6 million barrels the previous week, reaching their highest level since early July.
- Steady Production: Despite the rise in inventories, crude oil production in the U.S. remained steady at a record 13.2 million barrels per day, contributing to the oversupply.
- Global Dynamics Affecting Oil Prices:
- Slower Industrial Production: A 0.6% decline in U.S. industrial production in October, influenced by the United Auto Workers strike impacting motor vehicle output, contributed to concerns about slowing demand.
- China’s Role: Crude refining throughput in China slowed by 2.8% in October, indicating reduced demand in the world’s second-largest economy. The impact of China’s economic reopening after the pandemic on oil prices is diminishing.
- Speculators and OPEC’s Response: The Organization of Petroleum Exporting Countries (OPEC) blamed speculators for the recent price drop, dismissing negative sentiment as exaggerated. Hedge funds, heavily short on oil futures, are seen as driving the market lower. Analysts are closely watching OPEC’s November 26 meeting to see if they can engineer measures to address the market’s free fall, as OPEC believes speculators are a key factor in the price trend.
U.S. crude oil prices experienced a significant decline of 5% on Thursday, with the West Texas Intermediate (WTI) December contract falling by $3.84 to $72.82 per barrel, and the Brent January contract dropping $3.91 to $77.27 per barrel. Both benchmarks reached their lowest levels since early July. The market downturn was attributed to rising crude inventories in the U.S. and a simultaneous fall in industrial production.
Crude inventories in the U.S. increased by 3.6 million barrels the previous week, while production remained steady at a record 13.2 million barrels per day, according to data from the Energy Information Agency. The decline in U.S. industrial production by 0.6% in October, influenced by the United Auto Workers strike impacting motor vehicle output, further contributed to the negative market sentiment.
Oil expert Phil Flynn from the Price Futures Group noted that the combination of slower industrial production and increased oil supply has fueled concerns about slowing demand. The market is currently struggling to find support, and bearish sentiment is dominating.
China, the world’s second-largest economy, also played a role in the market dynamics. Crude refining throughput in China slowed by 2.8% in October, reaching 15.1 million barrels per day, down from a record high in September. This suggested a potential decline in demand in China.
Jim Burkhard, president of S&P Global Commodity Insights, highlighted the fading impact of China’s economic reopening after the pandemic on oil prices. Additionally, increased oil production in the U.S., Canada, Brazil, and Guyana has contributed to the oversupply. Burkhard emphasized the seasonal impact, noting the typical slowdown in demand during the winter.
OPEC, the Organization of the Petroleum Exporting Countries, countered negative sentiment and attributed the recent price drop to speculators. OPEC emphasized healthy crude imports in China, rising by 11.4 million barrels per day in October, and cited strong U.S. economic growth in the third quarter. The International Monetary Fund’s expectation of a 5.4% growth in China’s economy this year was also mentioned. OPEC characterized the recent price trend as influenced by financial market speculators rather than underlying market fundamentals.
Oil futures have seen significant short positions by hedge funds, contributing to the downward pressure. The market’s current dynamics are described as more influenced by financial considerations than fundamental factors. The upcoming OPEC meeting on November 26 is seen as crucial, and analysts will closely monitor OPEC’s response to the market conditions, particularly its stance on speculators and potential measures to address the price decline.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/16/us-crude-prices-fall-nearly-4percent-as-inventories-rise-.html
