Oil futures sank by $1 a barrel on Wednesday as surging U.S. crude inventories pushed down prices and a possible security threat to the U.S. that might dampen oil demand in the world’s largest economy.
Brent crude futures settled at $81.60 a barrel, shedding, $1.17, or 1.4%. U.S. West Texas Intermediate (WTI) crude futures settled at $76.64 a barrel, losing $1.23, or a 1.6%.
U.S. crude inventories jumped by 12 million barrels to 439.5 million barrels last week, the Energy Information Administration said, far exceeding analysts’ expectations in a Reuters poll for a 2.6 million-barrel rise as refining dropped to its lowest levels since December 2022.
“The refinery utilization rate is a pseudo disaster, down four to five weeks in a row at the end of winter” said Bob Yawger, director of energy futures at Mizuho, adding that refiners have kept activity slow even after emerging from a deep freeze that hampered operations last month.
Refinery crude runs last week fell by 298,000 barrels per day to 14.5 million bpd and refinery utilization rates decreased by 1.8 percentage points to 80.6% of total capacity, both the lowest levels since Winter Storm Elliott similarly knocked scores of refineries offline in December 2022.
Meanwhile, the U.S. Congress intelligence chair warned of a ‘serious national security threat’, without providing further details, scaring some oil investors.
“At the risk of sounding flip, war and/or terror events outside the oil producing regions are bearish for oil prices due to the expected hit to demand,” John Kilduff, partner at New York-based Again Capital.
Prices drew some support from a monthly report on Tuesday from the Organization of the Petroleum Exporting Countries (OPEC) that said global oil demand will rise by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025. Both forecasts were unchanged from last month.
In other OPEC news, Iraqi Prime Minister Mohammed Shia al-Sudani held a meeting with Saudi Energy Minister Prince Abdulaziz bin Salman, in which he highlighted the importance of co-ordination between the two countries to maintain stability in oil markets.
Kazakhstan said it will compensate in coming months for its oil overproduction in January, meeting its commitment to OPEC+ production cuts.
Geopolitical factors also influenced oil markets, including conflicts in the Middle East and Russia-Ukraine and the growing view that U.S. interest rate cuts will start later than previously expected.
“Currently events around Israel and Gaza, together with Ukraine’s war against Russia, weighs more on sentiment than disappointing U.S. inflation data,” said PVM analyst Tamas Varga.