Oil Prices Wane Despite Massive Decline in U.S. Oil Stocks – WSJ

Oil prices lost ground Friday despite a 14.5 million barrel decline in U.S. oil stocks, suggesting the drawdown was viewed as an outlier by traders and money managers.

The November contract for global crude benchmark Brent was down 1.08% at $49.45, while West Texas Intermediate fell 1.05% at $47.12 a barrel for October deliveries.

The massive fall in U.S. crude stocks lifted oil prices by over 4% Thursday, but many observers are interpreting the information cautiously.

“We are in the hurricane season and last week’s storm caused production disruptions and import delays,” Norbert Rücker from the Zurich-based Julius Baer bank said. “Gulf of Mexico oil and gas operations have largely resumed and tankers are queuing for offloading. The storage decrease is set to be a one-off, likely offset by large increases next week.”

If the huge decline was a storm-related event, prices could see a correction next week.

The London-based Energy Aspects added that an unexpected increase in U.S. crude exports should help temper next week’s expected rise in stock levels. In a note the think tank said September crude exports from the U.S. will average over 400,000 barrels a day in September with as much as 10 million barrels of crude set to arrive in Europe.

Other observers are turning bearish with worries continuing over sluggish global demand growth and increased supply. The situation has led analysts at the New York-based Morgan Stanley to admit that conviction levels for the market being rebalanced by mid-2017 are now falling.

The bank said in a note that additional unexpected supply from producers such as Iraq, Libya, Nigeria and the U.S. could derail hopes for the market rebalancing.

“Low prices aren’t necessarily the best cure for low prices. Producers are adapting to sustained low prices, limiting declines and beginning to invest again,” the bank said.

Meanwhile the Organization of the Petroleum Exporting Countries and Russia aremaintaining the production-freeze talk ahead of a meeting on the subject in Algeria on Sept. 28. But any deal would have to overcome major obstacles, including Iran’s refusal to consider a production cap until it hits pre-sanction levels.

Nymex reformulated gasoline blendstock for October—the benchmark gasoline contract was down 1.8% at $1.39 a gallon, while October diesel traded at $1.47, 0.9% lower.

ICE gas oil for September changed hands at $425. a metric ton, down 0.64%%.