Oil's week-long slide accelerated Wednesday, Nov. 15, following a surprise increase in U.S. inventories, a forecast for weaker demand growth and hints that Russia isn't ready to extend OPEC-coordinated production cuts.
Global benchmark Brent crude fell as low as $61.34 a barrel in overnight trading before regaining some of that lost ground early in the European session on Tuesday. Brent futures for delivery in January traded at $61.33, down 1.4% on the day and around 4.5% below more than two-year high of $64.27 on Nov. 6.
West Texas Intermediate futures for delivery in December tracked Brent's decline, falling to $54.96, down 1.36% from its Tuesday close, leaving the U.S. benchmark down just under 5% from its Nov. 6 high of $57.36.
U.S. crude stockpiles rose by 6.5 million barrels in the week to Nov. 10, the American Petroleum Institute, or API, reported late Tuesday. The increase bucked analyst expectations that U.S. crude reserves would decline by about 2.2 million barrels over the period. Gasoline stocks also climbed, up 2.4 million barrels, once again surprising analysts who had tipped stockpiles to fall by more than 1 million barrels.
The surprise out of the U.S. followed on the heels of an International Energy Agency, or IEA, report that suggested that oil demand growth over 2018 would be weaker than expected. The IEA, on Tuesday, cut its demand growth forecast by about 100,000 barrels per day for both 2017 and 2018.
"Higher prices and relatively mild early winter temperatures contributed to a downward revision to our demand forecast," said the group, which represents 29 oil importing countries. "We now see increases of 1.5 million barrels per day in 2017 (or 1.6%) to 97.7 mb/d, and 1.3 mb/d in 2018 (or 1.3%) to 98.9 mb/d."
Global crude markets will remain oversupplied through to the end of the first quarter of 2018, according to IEA analysts. They also noted that OPEC and Russian production cuts, in force since the start of the year, were increasingly being offset by non-OPEC producers, which were likely to increase average output by 700,000 barrels per day over 2017, rising to a forecast 1.4m/bd in 2018, "led by higher US output."
The third piece of bad news for oil prices came out of Russia, where reports have emerged that the country's oil officials are hesitating to commit to an extension of oil production caps at an OPEC meeting at the end of November.
"Positioning is long and expectations already elevated for the OPEC meeting on the 30th," noted Goldman Sachs analysts on Wednesday. "While ultimately we would still expect a cut extension to be announced...there is still event risk into the 30th November."
Goldman expects Russia will ultimately back an extension, noting that President Vladimir Putin agreed to extend the OPEC initiative in October during meetings with the Saudi King Salman bin Abdulaziz Al Saud. But questions remain over how long the agreement should remain in place and are unlikely to be resolved before the end of this month, Bloomberg reported Wednesday, citing unnamed sources.
That report chimes with recent comments from Russia's Energy Minister Alexander Novak, who said on Nov. 2 that Russia saw no need to extend the production cap deal so far in advance of its expiration.
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