Oil selloff resumes after pause over geopolitical scares

By Barani Krishnan

Investing.com --  Even a sizable drop in U.S. crude stockpiles can’t seem to assure a rally in oil these days.

Crude futures resumed their slide Wednesday as global supply scares that propped the market up in the previous session fizzled. 

Traders’ disregard for weekly inventory data released by the U.S. Energy Information Administration, or EIA, was also somewhat surprising.

The EIA reported a crude inventory drawdown of 5.4 million barrels for the week ended Nov. 11, versus forecasts for a decline of 440,000 barrels and against the previous week's decline of 3.925M. The plunge came as U.S. crude imports fell by almost 900,000 barrels per day on the average over the past week, or more than 6.0M barrels on the whole.

The market, however, stayed razor-focused on the resumption of Russian oil shipments to Hungary via the Druzhba pipeline and the surge in Covid-19 infections in China. 

Oil supply to parts of Eastern and Central Europe via a section of the Druzhba pipeline was temporarily suspended on Tuesday for technical reasons, according to oil pipeline operators in Hungary and Slovakia. Hungarian Foreign Minister Peter Szijjarto, however, confirmed Wednesday that flows through the Druzhba oil pipeline from Russia had resumed.

Both New York-traded West Texas Intermediate crude and London’s Brent crude rallied earlier on Wednesday after a tanker was hit off the coast of Oman on Tuesday, sustaining minor damage, highlighting the geopolitical risks in the world's busiest routes for oil shipments.

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

In China, rising COVID-19 cases weighed on sentiment after an easing of virus restrictions this week. Chinese authorities locked down Peking University after finding a single COVID case, evidence of their continued commitment to the country’s zero-COVID policy.

Beijing also reported more than 350 new Covid cases in the latest 24-hour period, representing a small fraction of its population of 21M but still enough to trigger localized lockdowns and quarantines under China’s zero-Covid strategy, as the Associated Press reported. Nationwide, China reported about 20,000 new cases this week, up from about 8,000 a week ago.

Some traders attributed Wednesday's selling pressure in oil to options expiry, which can usually exacerbate directional moves on the market.

Whatever the case, WTI for delivery in December settled down $1.33, or 1.5%, at $85.59 per barrel.  The U.S. crude benchmark was down 4% week-to-date, similar to last week’s decline.

Brent for January delivery settled down $1, or 1.07%, at $92.86. The global crude benchmark was down almost 3.5% on the week after last week’s tumble of 2.6%.

Aside from the crude draw it reported, the EIA’s weekly numbers on fuel products leaned on the bearish side with a larger-than-expected build in gasoline and a surprise rise in distillate stockpiles

The Biden administration’s drawdown of crude from the U.S. Strategic Petroleum Reserve also came in on the lower end, at around 4M barrels versus highs of as much as 8M during the summer.