Crude oil futures prices extended yesterday’s dramatic sell-off on Wednesday morning in European trading as a sharp stock build and pledges from Saudi Arabia to sharply increase output continued to weigh on sentiment.
At 1022 GMT, the December ICE Brent crude futures contract was trading down 37 cents/b at $75.11/b, while the NYMEX December light sweet crude contract was down 4 cents/b at $66.23/b, after slightly strengthening throughout the morning. “There is no sign of any significant recovery as of yet,” Commerzbank analysts said in a morning note.
On Wednesday, crude markets were still reeling from Tuesday’s fall-out, which has erased months of rallying prices to push prices back to levels last seen in August. That sell-off was spurred by pledges from Saudi officials that the kingdom would hike output as high as 11 million b/d, with oil minister Khalid al-Falih saying the country was in a “produce as much as you can” mode.
That promise appears to have offset concerns of a retaliatory oil embargo from Saudi Arabia, facing the fall-out from the murder of the Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul. An embargo would have exacerbated any supply tightness caused by US sanctions on Iran, which officially begin next month, while a sharp increase in output could tip the balance in global oil markets to over-supplied.
“The market is being weighed down by the Saudi promise to supply whatever is necessary. That promise is likely to be tested over the coming months,” Saxo Bank analyst Ole Hansen said. “It is hitting a market which is already on the defensive.”
The pledge also appeared to appease complaints about rising oil prices from US President Donald Trump, who called the Khashoggi case the “worst cover-up ever” on Tuesday, while also appearing to support comments by Saudi ruler Mohammed bin Salman that he had not been personally involved in the murder.
“[Mohammed bin Salman] is missing friends, he is in a very tight spot, and he is much more likely to listen to the call for more oil at low prices [from Trump] in the run-up to the US mid-term elections,” said Bjarne Schieldrop, an analyst at SEB in Oslo. The promise to raise output has arrived alongside a host of other bearish factors, including a sharp fall-out on global equity markets and signs of a large build-up in US stocks, both of which could continue through Wednesday.
On Tuesday, the American Petroleum Institute reported US crude inventories rose by 9.88 million barrels for the week to October 19, far out-stripping expectations of a build of 3.3 million barrels for the same week, according to analysts surveyed by S&P Global Platts. More definitive numbers will be released later in the day on Wednesday from the US Energy Information Administration, with the market looking for confirmation of a large build. Platts.com
