Oil Slumps as Iran Nuclear Talks Resurface, US Crude Stocks Rise

(Updates with settlement prices)

By Barani Krishnan

Investing.com - Crude prices fell 2% on Wednesday as the possibility of Iran holding nuclear talks with Western powers returned to headlines, amid Tehran’s bid to free itself from U.S. sanctions prohibiting the sales of its oil to the world.

A weekly build in U.S. crude stockpiles also weighed on the market as the EIA, or Energy Information Administration, reported an inventory level double to market expectations. The rise came as refiners boosted raw oil imports last week to make more products like gasoline and diesel, while exporters of crude shipped out less.

U.S. crude’s West Texas Intermediate benchmark settled down $1.99, or 2.4%, at $82.66 per barrel. It was the largest one-day dip in three weeks for the WTI, which hit a seven-year high of $85.41 on Monday.

London-traded Brent crude, the global benchmark for oil, finished the session down $1.82, or 2.1%, at $84.58. Brent hit a three-year high of $86.70 on Monday.

Crude prices fell as Iran's top nuclear negotiator said on Wednesday that Tehran’s talks with six world powers, aimed at reviving its 2015 nuclear deal, will resume by the end of November. The last time the parties met was in June.

U.S. crude stockpiles, meanwhile, rose by 4.27 million barrels during the week to Oct. 22, after the previous week’s decline of 431,000, the EIA’s Weekly Petroleum Status Report showed. 

Analysts tracked by Investing.com had expected a rise of around 2 million barrels for the week, putting what the EIA reported at almost double to expectations. In three weeks prior, crude inventories had risen without stop, building by a total of around 13 million barrels.

But in the grander context of the oil market, these were fleeting factors without the promise of lasting long enough to bring a meaningful correction to crude prices. 

For instance, Iran’s hardline regime President Ebrahim Raisi has constantly upended Western efforts to reign in the Islamic Republic's nuclear program.

And while U.S. crude inventories may have risen in the latest week, stockpiles at the Cushing, Oklahoma storage hub — a more important metric sometimes to the market — fell to a new three-year low. Gasoline stockpiles also slid again for the week.

“The near 4.3 million barrel crude build in the latest week might look big, but in the bigger scheme of what’s going on, it’s nothing as the U.S. supply situation of crude is still way below the weekly need for petroleum products such as gasoline and diesel,” said John Kilduff, founding partner at Again Capital, an energy hedge fund in New York.

The EIA data showed that crude oil imports rose by 430,000 barrels per day, or 3 million on the week, while exports fell by 273,000 barrels daily or a combined 1.9 million on the week.

On the other hand, gasoline stockpiles fell by almost 2 million barrels last week, adding to the previous week’s draw of 5.37 million.  Inventories of distillates, which included diesel, slipped by 432,000 barrels after a decline of 3.9 million the week prior.

In Cushing, almost 4.0 million barrels of crude vanished last week. As long as there aren't adequate weekly fills at Cushing, any hope of balancing crude supply with product demand will be futile. 

For perspective, over the past 10 weeks, any daily correction of 1-2% on WTI or Brent has often been overturned by a 4-5% surge by the end of the week.

While the current narrative in oil is overwhelmingly bullish, often the littlest of positive developments are magnified by those on the long side of the trade to blow the rally out of proportion.

Helping the oil narrative is, of course, producer cartel OPEC+ whose mission is to ensure that global output of crude remains at about a fifth of immediate needs. In any ordinary market, that would be deemed as deliberate stifling of natural production to create a lopsided market. But in OPEC terminology, it’s called “rebalancing”.

(With additional reporting by Sam Boughedda) 

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