US Crude Inventory Surprises Market
Oil prices experienced a notable decline after a government report revealed an unexpected increase in US crude stockpiles. The report showed a build in inventories that exceeded market expectations, contributing to a more pronounced drop in oil prices following a week of volatility.
Brent crude is trading around $80 per barrel, while West Texas Intermediate has slipped below $78. Both benchmarks fell approximately 2% in the previous session. US inflation data released on Wednesday was largely in line with expectations. US crude inventories increased by 1.36 million barrels, marking the first rise in stockpiles since June. This increase contrasts with estimates from the American Petroleum Institute, which reported a reduction of 5.2 million barrels on Tuesday.
Market Reactions and Future Outlook
The oil market has experienced significant fluctuations this week. Following a sharp rally on Monday, prices were retraced the following day. The International Energy Agency has indicated a potential global surplus in the fourth quarter if OPEC+ proceeds with planned production increases in October. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) has revised its global demand forecasts downward for this year and next, primarily due to a lower outlook for China.
Despite the recent declines, some analysts believe Brent futures may still have growth potential. Analysts from Citigroup Inc. highlighted geopolitical and weather-related risks, while Goldman Sachs Group Inc. anticipates a rebound in financial demand for crude derivatives from last week’s record lows. Both banks project that Brent could rise to the mid-$80s level.
Geopolitical Risks and Market Volatility
Further complicating the outlook are potential geopolitical risks, including the possibility of a retaliatory strike by Iran on Israel. The US has indicated that the likelihood of such an attack has increased, potentially impacting oil prices. Traders are actively seeking protection in options markets as tensions rise.
Vivek Dhar, an analyst with the Commonwealth Bank of Australia, noted that escalating Middle Eastern conflicts present a significant upside risk to oil prices over the next six months and potentially longer. Despite these concerns, the OPEC+ alliance faces the challenge of responding to subdued demand growth while defending its market share.
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