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U.S. oil drops nearly 3% Thursday on domestic stockpile surge, talk of efforts to raise output

By Mayra P. Saefong

Petroleumworld 10 04 2018

Oil futures settled lower on Thursday, with the U.S. benchmark suffering its largest one-day percentage decline since mid-August.

“Fundamental dynamics have shifted in favor of the bears this week with a huge build in commercial crude oil stocks and news that Saudi Arabia and Russia made a private agreement weeks ago to increase output to help offset the declining exports from Iran,” said Tyler Richey, co-editor of the Sevens Report.

November West Texas Intermediate crude CLX8, +0.51% the U.S. benchmark contract, lost $2.08, or 2.7%, to settle at $74.33 a barrel on the New York Mercantile Exchange. That was the biggest one-day percentage decline since mid-August. December Brent LCOZ8, +0.38% fell $1.71, or 2%, to $84.58 a barrel on ICE Futures Europe.

Uncertainty over whether major oil producers would be able to make up for the loss of Iranian exports to U.S. sanctions that kick in next month were among the factors driving prices higher Wednesday, when WTI topped $76 and Brent climbed above $86.

That increase came despite the largest weekly U.S. crude inventory build in more than 18 months, Riche said, “so from a fundamentals standpoint, the threat of looming sanction on Iran has been the only bullish influence this week.”

The Energy Information Administration reported Wednesday that domestic crude supplies surged by 8 million barrels for the week ended Sept. 28.

The Trump administration's decision to pull out of a 2015 international agreement to curb Iran's nuclear program, and a reimposition of economic sanctions on the third-largest producer of crude set to kick in next month have helped to drive oil prices higher.

In a further escalation of relations with Iran, U.S. Secretary of State Mike Pompeo announced Wednesday that the U.S. is terminating the 1955 Treaty of Amity, after a United Nations court said it prevented the U.S. from imposing sanctions that affect humanitarian aid.

That puts much attention on mega producer Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries. The kingdom's energy minister, Khalid al-Falih, announced that Saudi oil production would rise in October to 10.7 million barrels a day. That would be a record level, noted analysts at Commerzbank. A Reuters survey showed that Saudi Arabia was still producing 10.53 million barrels a day in September, they pointed out.

On top of that, according to data from the Russian Ministry of Energy, Russia already stepped up its oil production to a record-high 11.36 million barrels a day in September.

But the Commerzbank analysts questioned the lasting effect of these moves. “The increased production in both countries is consistent with a bilateral agreement reached at the meeting in Algiers at the end of September,” the analysts said.

They pointed to a Reuters report this week that Saudi Arabia and Russia agreed in a private deal to expand oil production . Originally, the plan had apparently been to officially announce a production increase of 500,000 barrels per day, but this met with opposition from a number of countries, including Iran.

“This, coupled with the fact that news of it is only emerging now, considerably reduces the impact of the bilateral agreement,” Commerzbank said in its note. “One has the impression that production is being scaled up only halfheartedly, which raises questions about oil producer's ability to react more proactively.”

In other energy dealings Thursday, November gasoline RBX8, +0.44% fell nearly 1.8% to $2.10 a gallon and November heating oil HOX8, +0.27% settled at $2.40 a gallon, down 1.5%.

Natural-gas prices finished lower as well, to log their first decline in four sessions after settling Wednesday at their highest since January.

The EIA Thursday reported that domestic supplies of natural gas rose by 98 billion cubic feet for the week ended Sept. 28. That was bigger than the 85 billion-cubic-foot increase expected by analysts polled by S&P Global Platts.

November natural gas NGX18, +0.60%  lost 2% to $3.165 per million British thermal units.


Story by Mayra P. Saefong from MarketWatch.
10 04 2018 19:19 GMT

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