Oil prices tumbled more than $2 a barrel on Wednesday before recouping some of their losses, weighed down by global central banks’ attempts to curb inflation and ahead of a projected building in US oil stocks as fuel demand slows.

Brent oil prices for September were down $1.81, or 1.69 percent, at $105.54 per barrel at 1215 GMT, while WTI crude for August fell $1.62, or 1.55 percent, to $102.60 per barrel. On Wednesday, the WTI contract will expire.

The more active September WTI contract was down $1.77 to $98.97 a barrel.

In the previous session, oil prices were trapped in a tug of war between supply anxieties triggered by Western sanctions against Russia and forecasts of economic weakness and lower demand as central bankers suggested they would hike interest rates to battle inflation. 

On Friday, open interest in New York Mercantile Exchange futures dropped to its lowest level since September 2015, as investors reduced their exposure to risky assets due to fears that the Federal Reserve would continue to raise interest rates in the United States.

“People have been switching out of Delta 1 products – just being long the futures or long via the index – into options because of the sharp pullback,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note.

Crude stockpiles in the United States increased by around 1.9 million barrels for the week ending July 15, according to market sources quoting American Petroleum Institute estimates on Tuesday. This was close to the 1.4 million barrel increase predicted in a Reuters survey.

The US Energy Information Administration (EIA) will release official weekly oil and gasoline inventory data on Wednesday at 1430 GMT, and traders will be looking for indicated demand.

Meanwhile, Libya began crude oil exports from Es Sider port on Wednesday, according to the oil ministry.

Analysts predict that supply constraints will continue to underpin oil prices, even as US shale oil output rises at a slow rate.

“With little room for OPEC+ to increase production, the oil market will struggle to balance out in the coming months, thereby propping up prices,” oil trader PVM’s Stephen Brennock said.

The CEO of ConocoPhillips (COP.N) warned on Tuesday of impending crude oil shortages and price volatility. 

Limited supplies have held Brent over $105/bbl, causing Brent inter-month spreads to widen to about $4.30 per barrel. In a backwardated market, front-month prices are greater than future-month prices.

Source: Reuters

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