Oil prices fell sharply Wednesday, in line with a big drop in stocks on Wall Street and as investors awaited a report expected to show a third consecutive weekly rise in U.S. oil inventories.
Light, sweet crude for November delivery ended 2.4% lower at $73.17 a barrel on the New York Mercantile Exchange, its lowest settle value in nearly two weeks. Brent crude, the global benchmark, was 2.2% lower at $83.09 a barrel.
The Energy Information Administration is due to release its weekly report on U.S. oil inventories Thursday morning. Analysts surveyed by The Wall Street Journal expect, on average, a 1.5-million-barrel increase in crude-oil stockpiles for the week ended Oct. 5, which would follow increases in each of the previous two weeks.
National Hurricane Center director Ken Graham talks about storm surge during a televised update on Hurricane Michael. Photo: Wilfredo Lee/Associated Press
The string of higher inventories reflects a seasonal drop in oil demand as refineries partially shut down for maintenance activities, and as drivers spend less time on the road than in summer.
The American Petroleum Institute, an industry group, said late Wednesday that its own data for the week showed a massive, 9.7-million-barrel increase in crude supplies, a 3.4-million-barrel rise in gasoline stocks and a 3.5-million-barrel decrease in distillate inventories, according to a market participant.
Rising U.S. oil inventories, combined with indications of increasing oil production in far-flung places such as Libya, suggests markets may have become too concerned about the impact on declining exports from Iran and crisis-racked Venezuela, according to some analysts. Those worries pushed oil prices to new four-year highs in recent weeks.
“Let’s worry about upside risks to supply for a change,” said JBC Energy in a research note. “The market may be far more able to absorb additional supply disruptions than many currently still assume, bringing with it a pronounced downside risk to outright prices.”
Still, many investors remain convinced the Iran sanctions will put a serious squeeze on supplies, especially as an aggressive stance by the Trump administration could mean stricter adherence to the ban on Iranian oil purchases than during previous sanctions. Standard Chartered revised its view on Iran’s exports to a fall of about 1.4 million barrels a day by year-end, from a previous estimate of a fall of 1 million barrels.
“With the Iran sanctions scheduled for early November, we have a variable that could tighten capacity even more,” said Mark Watkins, regional investment manager at U.S. Bank Wealth Management in Salt Lake City. “We are running near capacity and the Iran sanctions could place the world oil supply at capacity.”
Meanwhile, oil investors are still keeping their eye on Hurricane Michael, which cut offshore oil production in the Gulf of Mexico by 42%, or 719,000 barrels a day, on Wednesday due to producers evacuating workers on oil platforms as a safety precaution.
That decline amounts to a nearly 7% drop in overall U.S. oil production of around 11 million barrels a day. But while that is significant, such output reductions can be recouped quickly once the storm passes and workers return to their posts.
Oil prices also remained under pressure as analysts anticipated major organizations might downgrade their expectations for the world’s thirst for oil after the International Monetary Fund’s lowered projections for global economic growth for this year and 2019.
Experts at the IMF “are not the only people that do economic forecasts and I don’t think that people were unaware that economic prospects were threatened by trade wars,” said Paul Horsnell, head of commodities research at Standard Chartered. “It’s just another signal of the winnowing of the demand growth for next year.”
Among refined products, gasoline futures for November delivery fell 2.7% to $2.0204 a gallon. Diesel futures fell 1.2%, to $2.3949 a gallon.