Surge in Inventories Also Hurting Sentiment in Oil Markets
The honeymoon in oil markets seems to be over. After an approximately 15% surge following the oil-producing nations’ tentative agreement to cut output, the commodity was on course for its biggest weekly decline since January.
The enemy for this depressing outlook for the oil market comes from within. Investors in the energy markers raced to cover their long positions on signs that the Oil Producing and Exporting Countries (OPEC) won’t be able to allocate quotas for supply cuts due to a rivalry between the two largest producers—Saudi Arabia and Iran.
Advertisement
Oil futures on Friday were on course for their biggest weekly percentage declines since January, of just under 10%, as signs of tensions resurfaced between Saudi Arabia and Iran that could scupper a key supply-cut pact.
Losses for oil bulls steepened as Reuters reported that at a meeting of OPEC experts last week, Riyadh threatened to raise oil output steeply to bring prices down if Tehran refused to limit its production, citing a source from OPEC. (Source: “Exclusive: Saudis could raise oil output again as sparring with Iran returns – sources,” Reuters, November 4, 2016.)
This OPEC meeting was intended to work out the details of the cuts ahead of the next OPEC meeting on November 30, following the decision in Algiers to reduce output to 32.5 to 33 million barrels per day to stabilize the oversupplied oil markets.
The Reuters’ report was contradicted by OPEC Secretary General Mohammed Barkindo, according to a separate report by Bloomberg News. Prices sharply pared losses on the report, but resumed their slide shortly after.
An unexpected surge in U.S. crude inventories last week and continued weak demand also hurt sentiment. Crude oil stockpiles soared more than 14 million barrels last week in the U.S., the largest build on record.
U.S. West Texas Intermediate futures were down $0.59, or 1.3%, at $44.07 a barrel, having fallen as low as $43.57 earlier in the session. For the week, it was down more than nine percent, the biggest decline since mid-January. Brent crude futures were down $0.74, or 1.6%, at $45.61 per barrel, off a low of $45.08. It was on pace to end the week down more than eight percent.
