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Oil Falls as US Crude Inventories Post First Jump Since August

September 26, 2018 at 17:19 by Andrew Moran

Oil futures are tumbling midweek as the US government reported that domestic crude inventories recorded their first increase in six weeks. Crude’s losses have been capped by brewing tensions between the US and Iran after President Donald Trump warned of further pressure on the Tehran regime, which might threaten production volumes.

November West Texas Intermediate (WTI) crude oil futures slipped $0.45, or 0.62%, to $71.81 per barrel at 16:47 GMT on Wednesday on the New York Mercantile Exchange. US crude has stayed above the $70 threshold for more than a week, adding to its year-to-date gains of 23%.

Brent, the international benchmark for oil prices, is declining in the middle of the trading week. November Brent crude futures dropped $0.23, or 0.28%, to $81.64 a barrel on London’s ICE Futures exchange. So far in 2018, Brent prices have soared nearly 28%.

According to the US Energy Information Administration (EIA), domestic crude stockpiles surged by 1.9 million barrels for the week ending September 21, which completely defied market forecasts for a decrease of 2.2 million barrels. Gasoline inventories advanced 1.5 million barrels, while distillate supplies slid by 2.2 million barrels.

The Baker Hughes total rig count stood at 1,053, down from 1,055 in the previous week.

The international oil market is preparing for an immense impact to supplies from the latest US sanctions on Iran. While it remains unclear as to how much of a loss there will be of Iranian crude, several major refiners have already confirmed they will decrease their acquisitions. President Trump has also assured the market that there will be enough supply, adding that he is urging producers to boost their output levels.

Analysts are suggesting that the Trump administration could approve releasing some oil stockpiles from the Strategic Petroleum Reserve (SPR) to fight higher prices.

Goldman Sachs attempted to examine the short-term future of the international crude market:

The lack of new production growth guidance by OPEC does not reflect a desire to let prices appreciate meaningfully further, but rather the historical pattern of OPEC responding to rather than front-running production losses.

We continue to expect that the decline in Iran exports will reach 1.4 million barrels per day, and while it is occurring faster than we had previously expected, we continue to expect it to remain offset by a faster ramp-up in production from other producers.

Meanwhile, a stronger dollar may apply some pressure on oil prices as the Federal Reserve is widely expected to raise interest rates. The US dollar gained 0.1% to 94.24. A higher buck is bad for commodities pegged in dollars because it makes it more expensive for foreign investors to purchase.

In other energy markets, September natural gas futures tacked on $0.05, or 1.8%, to $2.74 per million British thermal units (btu). September gasoline futures were flat at $2.01 a gallon. September heating oil futures were unchanged at $2.096 per gallon.

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