Oil prices end lower Wednesday on rise in U.S. crude supplies, potential talks on Iran nuclear deal
By Myra P. Saefong and William Watts / MarketWatch
Petroleumworld 10 27 2021
Oil futures declined on Wednesday, with U.S. prices pulling back from a seven-year high after U.S. government data showed a rise in domestic crude inventories and amid reports that Iran may soon revive talks on a nuclear deal.
Wednesday’s price decline “primarily reflects traders trying to lock in their gains, rather than a change in fundamentals,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.
Notwithstanding the small crude inventory build reported by the Energy Information Administration and the American Petroleum Institute, “traders are aware that the market remains tight, the natural gas crisis in Europe continues and [liquefied natural gas] shipping lines remain clogged, while demand for all fuel types — coal, gas and oil — remains robust,” he said.
West Texas Intermediate crude for December delivery CL00, -3.05% CLZ21, -3.05% fell $1.99, or nearly 2.4%, to settle at $82.66 a barrel on the New York Mercantile Exchange, after ending Tuesday at another seven-year high.
December Brent crude BRNZ21, -0.63%, the global benchmark, lost $1.82, or 2.1%, at $84.58 a barrel on ICE Futures Europe, after closing Tuesday at a three-year high. January Brent BRN00, -0.58% BRNF22, -0.58%, the most actively traded contract, fell $1.78, or 2.1%, at $83.87 a barrel.
The Energy Information Administration reported on Wednesday that U.S. crude inventories rose by 4.3 million barrels for the week ended Oct. 22. On average, analysts polled by S&P Global Platts expected a 100,000-barrel decline, but the American Petroleum Institute on Tuesday reported a 2.3 million-barrel climb, according to sources.
However, the EIA data also revealed that crude stocks at Cushing, Oklahoma, the delivery hub for Nymex futures, fell by 3.9 million barrels for the week.
“While the headline crude build may be viewed as bearish, another significant drop in Cushing inventories — now down to 27 million barrels, the lowest since October 2018 — is likely set to limit today’s selloff,” said Matt Smith, lead oil analyst, Americas, at Kpler. “At the recent pace of draws, Cushing could be close to tank bottoms by December.”
At the recent pace of draws, the Nymex delivery hub at Cushing, Okla. could be “close to tank bottoms by December.”
— Matt Smith, Kpler
Still, speculation over renewed talks surrounding a nuclear deal with Iran weighed on prices also.
“If this leads to the eventual withdrawal of U.S. sanctions, Iranian oil exports will rise, ending the threat of a supply shortage that has been partly the reason behind the big oil rally,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a market update.
Iran’s chief negotiator, Ali Bagheri, said Wednesday that Iran will return to nuclear discussions before the end of November, according to The Wall Street Journal. Talks between the country and world powers to restore the 2015 nuclear deal had been suspended in June.
Traders also weighed prospects for the outcome of a meeting next week of major oil producers.
“Saudi Arabia really is…in control of price action as we go forward,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. The Organization of the Petroleum Exporting Countries meets next week and the U.S. administration has been pushing OPEC to increase production.
“The only real production that can be increased in a timely fashion is from Saudi Arabia,” said Zahir. “Nigeria and others have had a hard time just trying to keep up with the increase in production that is already happening. All eyes will be on the OPEC meeting next week to see what Saudi Arabia does.”
Meanwhile, the EIA also reported weekly inventory declines of 2 million barrels for gasoline and 400,000 barrels for distillates. The S&P Global Platts survey expected supplies to decrease by 2.7 million barrels for gasoline and 2 million barrels for distillates.
“Subdued refining activity has resulted in modest draws to both gasoline and distillates, despite implied demand dropping for both,” said Kpler’s Smith.
On Nymex Wednesday, November gasoline RBX21, -3.23% lost 2.7% to $2.45 a gallon and November heating oil HOX21, -2.86% shed 2.4% to $2.515 a gallon.
Natural-gas futures finished higher amid the expiration of the November contract at the end of the session and some forecasts calling for colder weather, analysts said. Prices briefly moved lower following news reports that Russian President Vladimir Putin ordered Gazprom to send more natural gas to Europe next month.
November natural gas NGX21, +5.76% rose 5.4% to $6.202 per million British thermal units after touching a low at $5.77. Front-month prices finished at their highest in just over three weeks, according to Dow Jones Market Data. The December natural-gas contract NGZ21, +2.45%, which became the front month at the end of the session, tacked on almost 3.3% to $6.198 per million Btus.