Oil futures remained under pressure Thursday, extending a decline sparked by an unexpected rise in U.S. crude inventories that has taken the global benchmark below $80 a barrel and U.S. benchmark below $70 a barrel for the first time in roughly three weeks.
Some analysts also argued that the impact of renewed sanctions on Iran, which are due to take full effect on Nov. 4, has been fully priced into the market.
Natural-gas prices, meanwhile, looked to give up much of what they gained Wednesday after Energy Information Administration reported a weekly rise that generally met market expectations, but data revealed that total supplies of the fuel in storage climbed to their highest level since late 2017.
November futures on the U.S. benchmark, West Texas intermediate crude CLX8, -0.29% fell 20 cents, or 0.3%, to $69.55 a barrel on the New York Mercantile Exchange, while the global benchmark December Brent crude LCOZ8, -0.32% declined 47 cents, or 0.6%, to $79.58 a barrel, on the ICE Futures Europe exchange.
Among the products traded on Nymex, November gasoline RBX8, -0.83% fell 1.1% to $1.898 a gallon, while November heating oil HOX8, +0.17% was off 0.1% at $2.308 a gallon.
Oil fell sharply Wednesday after the EIA reported a 6.5 million barrel rise in domestic crude inventories in the week ended Oct. 12, far larger than expected and the fourth consecutive weekly increase.
“The rise in inventories continues a recent trend that is signaling that supply is not an issue,” Brian Youngberg, senior energy analyst at Edward Jones, told MarketWatch.
A fall in crude exports led to an increase in net imports, boosting inventories despite a fall in production in the Gulf of Mexico due to Hurricane Michael.
“Concerns over U.S.-Saudi relations have had no material impact,” Youngberg said. “The thought that the impact from Iran sanctions will just be offset by production elsewhere is also causing bulls to retrench a bit.”
Read: Here’s why oil isn’t rallying despite U.S.-Saudi tensions over missing journalist
Analysts at Vienna-based consulting firm JBC Energy said the hit to global supply from Iran sanctions has already been largely factored into prices.
“Satellite ship-tracking services indicate that Turkey is the only regular European buyer of Iranian crude left, implying that EU refiners have already successfully reshuffled some 500,000 [barrels a day] of crude imports away from Iranian crude,” they wrote, adding that a deep discount for Urals NWE crude versus Brent indicates there is no particular shortage of medium-sour crude in Europe.
If Iranian crude exports stabilize at 900,000 barrels a day, it would make for a strong case that the peak bullish impact of the Iran sanctions has passed, potentially depriving the market “of a major pillar of support at a time when the demand and refining pillars are already teetering,” they said.
On the other side, Eugen Weinberg, head of commodity research at Commerzbank, said it appeared that hopes the shortfall in Iran exports would be offset by a resumption of oil output in the so-called neutral zone between Saudi Arabia and Kuwait “appeared to be coming to nothing.”
The neutral zone is a 2,230 square-mile area between the borders of the two countries that’s been left undefined since the border was established in 1922. S&P Global Platts reported earlier this week that talks between the two countries over two shared oil fields have broken down, shutting in around 500,000 barrels a day of anticipated oil production.
“Efforts to achieve this have failed for now,” Weinberg said, in a Thursday note. “The market therefore risks seeing supply tighten until year’s end, so we do not believe a Brent price below $80 is justified.”
Still, Youngberg also pointed out that the market has “already seen reduced exports from Iran, but increased production from the three largest producers, the U.S., Saudi Arabia and Russia.” So while supply looks robust, “a bigger question ... is how global demand is holding up. It appears it is, but it is something markets are watching in coming months.”
In other energy news Thursday, the EIA reported that domestic supplies of natural gas rose by 81 billion cubic feet for the week ended Oct. 12. Consensus estimates called for build near 85 billion, according to Schneider Electric. Total stocks now stand at 3.037 trillion cubic feet, the highest level since late December 2017, EIA data show.
November natural gas NGX18, -2.68% lost 1.9% to $3.258 per million British thermal units.
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