Oil prices dip on unexpected rise in US stockpiles

Oil prices dipped on Wednesday and WTI price dropped from $69.6 to $69.1 per barrel. If oil prices retreat, they may encounter support near $66.9 per barrel, while resistance may be found near $70.7 per barrel.

Oil prices edged lower on Wednesday as rising US stockpiles countered geopolitical concerns. US crude oil inventories released on Wednesday showed a surprise build in US crude stockpiles, putting pressure on oil prices. The US Energy Information Administration reported that weekly crude stocks rose by 0.5M barrels for the week to November 8th, against an expected draw of 0.1M barrels and following a 2.1M barrels build the week before. 

Reports that US President-elect Donald Trump has urged Russian President Vladimir Putin to deescalate tensions in Ukraine put pressure on oil prices last week. Oil prices rallied on Monday, however, as tensions between Russia and Ukraine flared over the weekend. Russia launched a large airstrike against Ukraine’s energy infrastructure over the weekend, causing oil prices to spike. In addition, US President Joe Biden green-lighted Ukraine’s use of US-bought missiles against Russia. Russia has deployed North Korean troops into Ukraine, which fuelled Biden’s decision to permit Ukraine to use the missiles. These long-range missiles can reach deep into Russian territory and Biden’s decision can cause the crisis in Ukraine to escalate further. Ukraine has already launched the first missiles into Russia, according to reports by Bloomberg. 

Reports that Russian President Vladimir Putin updated Russia's nuclear doctrine boosted safe-haven demand on Tuesday. Dmitry Peskov, Press Secretary of the President of the Russian Federation, said on Tuesday that Russia might use nuclear weapons if it was subject to a conventional missile assault supported by a nuclear power. The Russian Government’s message came as a response to Biden’s approval of the use of US missiles by Ukraine against Russia. Peskov also threatened that Biden’s approval of the use of missiles by Ukraine could lead to a third world war. On Wednesday, however, Russian President Vladimir Putin stated that he would be open to negotiations for a ceasefire deal with Ukraine, brokered by US President-elect Donald Trump, according to a report by Reuters.

Concerns of a broadening conflict in the Middle East have also boosted oil prices in the past year. The conflict in the Middle East, however, has been raging for over a year without significantly affecting oil supply and distribution, and markets are starting to ignore this risk.

Oil prices exhibited high volatility after the US elections, but have steadied since, as markets had time to digest the US election outcome. Trump’s anti-renewable energy policies are raising demand for fossil fuels, but the President-elect has already expressed his intention to start more drilling for oil in the US. 

Reports that Norway's Johan Sverdrup oilfield had shut down due to a power outage, boosted oil prices on Monday. Norway's oilfield resumed operation on Tuesday, however, reaching approximately two-thirds of its maximum output.

The Organization of Petroleum Exporting Countries (OPEC) revised its global Oil demand forecast downward for the fourth month in a row, putting pressure on oil prices. OPEC announced earlier this month that it would extend its output cuts of 2.2 million barrels per day into December. The organization had already delayed output rises in October due to low demand and weakening oil prices. 

Oil prices are kept in check by high central banks’ interest rates. Odds of another rate cut in December dropped to 50% on Wednesday on hawkish Fedspeak, putting pressure on oil prices.

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Written by:
Myrsini Giannouli

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