After Geopolitical Worries, Oil Sales Resume

Even a big drop in U.S. crude stocks does not appear to be sufficient to guarantee an increase in oil prices at this time.

Crude oil futures resumed their drop on Wednesday, as supply concerns that had supported the market in the previous session faded away.

Also striking was the dealers' disregard for weekly Energy Information Administration (EIA) inventory data.

For the week ending November 11, the EIA reported a crude inventory decrease of 5.4 million barrels, compared to the expected decrease of 440,000 barrels and the previous week's decrease of 3.925 million barrels. During the previous week, U.S. crude imports decreased by an average of 900,000 barrels per day, or more than 6.0 million barrels in total.

Nonetheless, the market remained fixated on the resumption of Russian oil exports to Hungary via the Druzhba pipeline and the rise in Covid-19 infections in China.

According to operators of oil pipelines in Hungary and Slovakia, a portion of the Druzhba pipeline was temporarily shut down for technical reasons on Tuesday, halting the flow of oil to portions of Eastern and Central Europe. Wednesday, Peter Szijjarto, the Hungarian foreign minister, announced that Russian oil supplies through the Druzhba pipeline have resumed.

After a tanker sustained minor damage off the coast of Oman on Tuesday, both New York-traded West Texas Intermediate crude and London's Brent crude rose early on Wednesday, highlighting the geopolitical dangers in the world's busiest oil shipping routes.

"Various geopolitical influences, such as an oil tanker being struck by a bomb-carrying drone off the coast of Oman and Russia tensions, are being largely ignored in favor of more bearish elements, such as weak Chinese economic data and demand," said Matt Smith, oil analyst at Kpler, in comments carried by Reuters.

The rising incidence of COVID-19 in China reduced morale following this week's easing of virus restrictions. Chinese officials shut down Peking University after discovering a single COVID case, demonstrating their unwavering commitment to the country's zero-COVID policy.

Beijing also reported over 350 new Covid cases in the past 24 hours, according to the Associated Press, which represents a negligible portion of the city's 21 million population but is sufficient to trigger localized lockdowns and quarantines under China's zero-Covid plan. This week, China recorded nearly 20,000 new cases, compared to 8,000 the week before.

Wednesday, oil's selling pressure was attributed to options expiry, which may frequently amplify market direction changes.

Despite this, WTI for December delivery finished at $85.59 a barrel, down $1.33, or 1.5%. The benchmark for U.S. crude declined by 4% week-to-date, the same as the previous week.

Brent for January delivery decreased $1, or 1.07 percent, to $92.86. After a decline of 2.6% the previous week, the global crude benchmark dropped over 3.5% for the week.

Aside from the crude decrease, the EIA's weekly statistics on fuel products were negative, with a larger-than-anticipated increase in gasoline and an unexpected increase in distillate stocks.

The Biden administration's depletion of petroleum from the U.S. Strategic Petroleum Reserve was similarly below average, at around 4 million barrels compared to summer highs of eight million barrels.