Full Warehouses, Sanctions Continue: Oil Markets Increasingly Unsettled
World oil prices weakened again as the market faced two major colliding factors: sharply rising US oil inventories and the risk of Western sanctions against Russia. Brent crude fell to near US$64 per barrel, while West Texas Intermediate (WTI) hovered around US$60, after initially strengthening in trading on Tuesday.
A report from the American Petroleum Institute (API) showed US crude inventories rose by around 4.4 million barrels, along with a rise in refined product stocks. If official government data confirms these figures, US oil stocks would reach their highest level in more than five months. Meanwhile, US sanctions against Russian producers Rosneft and Lukoil are set to take effect soon, prompting some major buyers in Asia to hold back some purchases, while the European diesel market actually strengthened due to supply concerns.
Trendwise, oil prices have actually been under pressure all year. Oil experienced three consecutive months of declines through October due to concerns that global supply would outstrip demand. The International Energy Agency (IEA) even projects the potential for the largest glut next year, driven by increased production from OPEC+ and producing countries outside the cartel.
One analyst stated that oil prices are currently "locked" in a narrow range, squeezed between the oversupply outlook and geopolitical concerns about Russia. The risk of war and sanctions should add a risk premium to prices, but on the other hand, high stock and production data are holding back gains. Additional signs of a surplus are also evident in the volume of oil carried by tankers, which reached a new record of around 1.4 billion barrels, both in transit and stored in floating storage.
Following the temporary US government shutdown, market participants are also preparing to receive a series of delayed data. The Commodity Futures Trading Commission (CFTC) will again release its Commitments of Traders report and catch up with up to two releases per week until the normal schedule is restored on January 23. Amidst the torrent of data and uncertainty, Brent crude's January contract fell slightly to around US$64.78 per barrel, while WTI's December contract hovered around US$60.67 and its January contract around US$60.57 per barrel. (asd)
Source: Bloomberg
