Oil prices lower on rising US crude stocks, Middle East tensions

Oil prices
Oil prices seesawed on Wednesday on increased US crude stocks and rising tensions in the Middle East. Encana photo.

Oil prices slip in Wednesday trading

Oil prices dipped in volatile trading Wednesday on rising tensions in the Middle East and despite US Energy Information Administration data that shows an increase in US production and a surprising increase in US crude stocks.

By the end of the session, Brent crude was down 20 cents to $63.49/barrel, and US WTI fell 39 cents to $56.81/barrel.  The Canadian Crude Index was up by $2.80 to $42.32.

Oil traders are keenly following the build up of tensions between Saudi Arabia and its rival, Iran.

The Saudis along with their Gulf allies believe Iran is behind the conflict in Yemen.  On Monday, the kingdom’s Foreign Minister said Saudi Arabia reserves the right to respond to Iran’s “hostile actions”.

As well, Saudi Arabia’s Crown Prince Mohammed Bin Salman arrested a number of royals, investors and ministers over the weekend as part of a so-called crackdown on corruption.

On Nov. 30, OPEC and non-cartel participants in the OPEC supply cut agreement will meet in Vienna to discuss the possibility of extending the agreement to the end of 2018.

The OPEC cuts, which amount to about 1.8 million b/d along with rising demand have begun to erode the global oversupply of crude.  In the past month, Brent futures have gained about 14 per cent.

“Stronger oil fundamentals and investor inflows have been the catalyst for higher oil prices, but adding further support now is a focus on several geopolitical risks that have been looming over oil markets for a while,” said Citi analysts.

In the United States, data from the EIA shows crude production rose to 9.6 million barrels per day (b/d) during the week of Nov. 3, the highest level since 1983.

“The most notable thing in the EIA report was that production increased. We’re on our way to set record crude oil production in 2018,”Andrew Lipow, president of Lipow Oil Associates told Reuters.

The EIA also reported that US crude stocks rose by 2.2 million barrels. Analysts participating in a Reuters poll had predicted a 2.9 million barrel draw and on Tuesday, the American Petroleum Institute reported a 1.6 million barrel drop.

In the 2017 World Oil Outlook by OPEC, the cartel predicts demand for its crude will rise slower than previously thought in the coming two years.  Rising oil prices will encourage the cartel’s competition to increase their output, cutting into OPEC’s business.

Earlier in the session, prices had dropped on data showing Chinese crude imports had fallen to a one-year low.  In October, China imported 7.3 million b/d, down from the record 9 million b/d in September, according to the General Administration of Customs.