Oil prices slump as surprise rise in US crude stocks sparks demand fears

Brent crude could reach $90 a barrel due to geopolitical tension

Crude oil storage tanks in Cushing, Oklahoma. Reuters
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Oil prices slumped on Wednesday as an unexpected increase in US crude inventories stoked concerns about fuel demand.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.04 per cent lower at $85.35 a barrel at 11.09am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was down 0.98 per cent at $80.82 a barrel.

US crude stocks, an indicator of fuel demand, rose by 9.3 million barrels in the week ended on March 22, according to an American Petroleum Institute report cited by Bloomberg.

Following a two-million-barrel expansion in the week that ended on March 15, research company Macquarie was expecting American crude stockpiles to fall by 1.3 million barrels last week.

The American Petroleum Institute also reported a 2.4 million barrel rise in crude stocks at the Cushing, Oklahoma storage centre, despite a reduction in petroleum stockpiles.

Cushing, a key trading and storage centre, has a capacity of 90 million barrels and accounts for 13 per cent of total US oil storage.

If confirmed by data due to be released by the US Energy Information Administration later today, the levels of crude at Cushing would have recorded the largest weekly increase in barrel volume since January 2023.

Oil prices have risen by about 11 per cent since the beginning of the year due to Opec+ supply cuts and geopolitical uncertainty arising from Ukrainian drone attacks on Russian oil infrastructure.

“We expect Brent to grind higher until $90 or until we reach June, supported by geopolitical tension which has shifted back to Russia-Ukraine, as well as a healthy debate on global balances,” said Vikas Dwivedi, Macquarie’s global energy strategist.

“If Brent reaches $90, we believe most of the upside will be factored into oil and the remaining unpriced fundamental factors, mostly supply growth related, will largely be bearish,” he said.

The Opec+ alliance recently extended voluntary cuts of 2.2 million barrels per day into the second quarter to stabilise oil markets.

The group will hold an online meeting on April 3 to review oil market conditions. A full ministerial gathering will be held in Vienna in June.

Analysts say Opec+ may have to bring back some barrels to the market in the second half of the year to meet higher demand.

“It's hard to find a scenario that they see no need for extra barrels because it's so huge the amount of surplus or extra barrels that we see needed from Opec+,” Iman Nasseri, managing director for the Middle East at FGE, told The National.

“[At] the moment we see around a million bpd, maybe up to 1.5 million bpd of extra barrels coming from Opec+ during the second half of this year.”

Updated: March 27, 2024, 8:18 AM