Oil Weakens, Risk of Kazakhstan Disruption Eases
Oil prices fell on Wednesday (January 21st), as the market began to shrug off temporary production disruptions in Kazakhstan. Focus shifted to a more pressing issue: the expected rise in US crude oil inventories, which typically signal abundant supply and put downward pressure on prices.
The Brent contract fell 97 cents (-1.5%) to $63.95/barrel, while WTI weakened 78 cents (-1.3%) to $59.58/barrel.
The day before, these two contracts had closed up almost $1/barrel (+1.5%) after Kazakhstan—an OPEC+ member—shut down production at two large fields, Tengiz and Korolev, on Sunday due to power distribution issues. Strong Chinese economic data also provided some relief.
However, the market viewed the disruptions as temporary. Three industry sources said the production outages could last 7-10 days, but still not enough to offset the pressure from potential rising US inventories.
IG analyst Tony Sycamore believes the production outages at Tengiz (one of the world's largest oil fields) and Korolev are just a brief respite. Meanwhile, expectations of rising US oil inventories coupled with geopolitical tensions will continue to weigh on prices.
From a geopolitical perspective, the market is also uneasy about US President Donald Trump's threat of new tariffs on European countries if there is no agreement on US ambitions to control Greenland. For the oil market, tariffs are a sensitive issue because they have the potential to hamper economic growth—and if the economy slows, energy demand will also weaken.
Early polls indicate that US crude oil and gasoline inventories likely rose last week, while distillate (diesel) inventories are expected to fall. Six analysts estimate crude oil inventories rose by around 1.7 million barrels for the week ending January 16.
Weekly inventory data from the API is scheduled for release Wednesday evening US time, followed by the EIA on Thursday—both delayed by a day due to the US federal holiday on Monday.
While rising inventories are typically bearish, Eurasia Group analyst Gregory Brew cautions that a factor could restrain a decline: the potential for renewed US-Iran tensions. Trump has even threatened to attack Iran over its crackdown on anti-government protests. Iran has issued strong statements that an attack on the Supreme Leader could trigger a declaration of "holy war."
Bottom line: US stocks are pressuring prices today, Kazakhstan's disruption is considered temporary, but geopolitical risks—especially Iran—could still act as a trigger that could push prices up again at any time.
Source: Newsmaker.id
