Oil prices drop as concerns of impending OPEC+ output cut fade

Against analysts’ expectations of a drop of 900,000 barrels, U.S. crude stockpiles decreased by about 5.6 million barrels for the week ended August 19, according to market sources citing American Petroleum Institute figures on Tuesday.

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Oil prices fell on Wednesday, following a nearly 4% rise the previous day on fading fears of an impending output cut by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.

Brent crude futures fell 21 cents, or 0.2%, to $100.01 per barrel by 0114 GMT, after rising 3.9% on Tuesday. The West Texas Intermediate crude futures contract in the United States was down 10 cents, or 0.1%, at $93.64 per barrel after rising 3.7% the day before.

Both contracts rose on Tuesday after Saudi Arabia, the de facto leader of OPEC, hinted at the possibility of introducing cuts to balance a market it described as “schizophrenic,” with the paper and physical markets becoming increasingly disconnected.

However, potential OPEC+ production cuts are not imminent and are likely to coincide with Iran’s return to oil markets if it strikes a nuclear deal with the West.

On Monday, a senior US official confirmed that Iran had dropped some of its main demands in order to resurrect a deal.

“Tuesday’s rally was overdone because many investors knew that even if an agreement to revive Tehran’s 2015 nuclear deal was reached, it would take several months for Iranian oil to flow into the international market, implying that OPEC+ would not cut output so quickly,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.

“However, there is not much room for the market to fall due to robust heating fuel demand for the winter,” he said, citing the recent rally in the U.S. heating oil market and surging natural gas prices as reasons for higher heating oil demand and tighter crude supply.

Due to a surge in prices in Europe, where supplies remain tight, U.S. gas prices surpassed $10 for the first time in about 14 years.

According to market sources citing American Petroleum Institute figures on Tuesday, U.S. crude stockpiles fell by about 5.6 million barrels for the week ended Aug. 19, compared to analysts’ estimates of a drop of 900,000 barrels in a poll.

However, gasoline inventories increased by approximately 268,000 barrels, while distillate stocks increased by approximately 1.1 million barrels.

Oil has soared in 2022, approaching an all-time high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns. Prices have since been weighed down by concerns about a global recession, rising inflation, and weaker demand.

Russia refers to its operations in Ukraine as a “special operation.”