Oil Prices Recover from 13-Month Lows, but Oversupply Fears Keep Rally Subdued
Crude oil bounced back Wednesday from one of the worst selloffs of the year, though the extent of the rally was limited by persistent oversupply fears after President Trump thanked Saudi Arabia for helping to lower prices in recent weeks.
Crude’s Tepid Recovery
The West Texas Intermediate (WTI) benchmark for U.S. crude futures climbed 89 cents, or 1.7%, to $54.32 a barrel on the New York Mercantile Exchange. The contract reached a session high of $54.85 a barrel before tapering off later in the morning. WTI plunged more than 7% on Tuesday to close at its lowest level in 13 months.
London-traded Brent international crude futures reached a session high of $63.96 a barrel before also paring gains. It was last seen trading at $62.74 a barrel, having gained 21 cents, or 0.3%.
U.S. crude inventories surged much more than expected last week, reinforcing concerns of an oversupplied market.
The U.S. Energy Information Administration (EIA) said commercial stockpiles rose by 4.85 million barrels in the week ended Nov. 16 following again of 10.27 million barrels the week before. Analysts in a median estimate called for a weekly build-up of 2.94 million barrels. Stockpiles in the world’s largest economy have been rising steadily since September, placing downward pressure on crude prices.
The report also showed a gasoline drawdown of 1.3 million barrels, which was much higher than the 200,000-barrel drop predicted by analysts.
Trump Stands by Saudi Arabia
President Trump has reaffirmed his administration’s support for Saudi Arabia even after the CIA confirmed that Crown Prince Mohammed Bin Salman was involved in the killing of dissident journalist Jamal Khashoggi. In a statement issued Tuesday, Trump said the Saudis played a key role in keeping oil prices lower.
“In any case, our relationship is with the Kingdom of Saudi Arabia… After the US, Saudi Arabia is the largest oil producing nation in the world. They have worked closely with us and have been very responsive to my requests to keeping oil prices at reasonable levels – so important for the world,” Trump said in the statement, as quoted by Investing.com.
That said, hedge funds and institutional investors have been weary of re-entering the oil trade following the death of Khashoggi, which resulted in an international backlash against Riyadh. Fundamentals also support the continued drop in oil prices as the global economy shows signs of slowing and major producers pledge to fill in the gap caused by Iranian sanctions.
Saudi Arabia and its OPEC allies will meet in Vienna early next month to set output levels. The cartel is believed to be eyeing a fresh round of production cuts to support to keep prices from falling further. Such action would put the Saudis at odds with the Trump administration, which seeks to keep prices lower.
Featured image courtesy of Shutterstock.