Oil plunged after a US inventory report signaled slowing demand and the Organization of Petroleum Exporting Countries agreed to a small production increase in September.
West Texas Intermediate futures fell 4% to settle at $90.66 a barrel, the lowest level since early February, before Russia invaded Ukraine. A bearish government report dragged prices lower as crude stockpiles rose by more than 4 million barrels, while the four-week seasonal average for gasoline demand fell below the 2020 level. The data arrived after OPEC and its allies cited the prospect of slowing demand in its decision to lift supply by just 100,000 barrels a day, a tiny fraction of the group’s overall production and a far smaller increase than it has added in recent months. Delegates said they are concerned that a potential recession in the US and Covid-19 lockdowns in China will sour demand.
Motor gasoline supplied figures have been closely watched by the market to get a read on where consumption stands, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management. “There had been hopes after last week’s data that soft July demand data was reversing,” said Babin. “This week’s release will keep buyers on hold.”
OPEC’s muted additions to global supply come as oil settled at the lowest in six months, giving back all of crude’s gains since Russia began its war. At the same time, investors continue to fret about a global economic slowdown and signs that some of the extreme strength in crude markets over recent months may be easing. “The announced increase from OPEC+ equates to a nonevent,” said Stacey Morris, head of energy research at VettaFi. “The amount is so modest that it is a rounding error for global oil markets,” she added, noting that the market remains “hypersensitive” to supply and demand dynamics and that volatility would continue.
The unwinding of prices was also seen further down the futures curve as WTI’s prompt-spread, a gauge of supply and demand fundamentals, traded below $1 a barrel for the first time since April. The spread narrowed as crude inventories at Cushing, Oklahoma, the nation’s largest stockpile hub, rose for a fifth week.
Meanwhile, Enrique Mora, the European Union envoy to talks to revive the 2015 nuclear deal between Iran and world powers, is heading to Vienna to discuss the accord, he said on Twitter. While resumption of the nuclear deal could see more Iranian oil hit the market by easing sanctions on the country, the participants have failed to reach an agreement despite months of negotiations.