Oil dips after three-year high
API reports surprise US inventory build for second successive week
Crude oil futures traded down slightly on Wednesday morning, shortly after the commodity rose to a new multi-year high.
Brent crude oil futures briefly traded at $83.43 per barrel, the highest price since the $84.16 per barrel seen two years and a day ago on 5 October 2019.
Oil’s bull run can be broadly attributed to the dominant theme of 2021, namely the demand triggered by post-Covid economic activity far outstripping supply, which was limited in the wake of the global health crisis.
In the more immediate term, however, the crude’s latest heights can be attributed to the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+.
After meeting at the start of the week, the consortium “reconfirmed the production adjustment plan and the monthly production mechanism” that it had agreed to in August, increasing overall output by 400,000 barrels per day every month until the end of the year.
This came despite the efforts of US President Joe Biden who, faced with rising prices at the petrol pumps, called on the US’ key ally and de-facto OPEC leader, Saudi Arabia, to step up production.
With Europe also dealing with a prospective energy crisis as it heads into Winter, spurred by skyrocketing natural gas prices, demand has increased for alternative forms of fuel.
Need for internal unity
Having experienced a year of consistently low oil prices, few expected OPEC members to heed this call. Furthermore, rising costs are thought to have hampered the ability of some smaller nations within the group to dramatically increase output, even if they wished to do so.
Following its latest meeting, the consortium emphasised the need for internal unity and signalled its unwillingness to opt for rapid increases in production that would leave smaller members behind.
It stated that it had: “Reiterated the critical importance of adhering to full conformity and to the compensation mechanism taking advantage of the extension of the compensation period until the end of December 2021.”
Oil’s upward momentum can be said to have been interrupted by the latest report from the American Petroleum Institute (API), which indicated a potential weakening in US fuel demand.
Instead of the 300,000 loss projected by analysts, the API stated that inventories rose by 951,000 barrels for the week ended 1 October.
At 11:30 BST, after the second surprise build in US crude inventories in as many weeks, WTI spot traded down by 0.4% at $78.40 per barrel. Brent crude spot traded 0.2% lower at $82.06 per barrel.