WTI down sharply to $80.00 level, biggest one-day drop since August

Oil prices have been dropping sharply in recent trade. Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, has now dropped back to $80.00 per barrel level for the first time since mid-October. As things stand, WTI is down about $3.0 or more than 3.5% on the day, the largest percentage drop in one day since early August.

News that Iran and the EU (and indirectly, the US) will return to the negotiating table regarding Iran and the US rejoining the 2015 nuclear pact, thus paving the way for the removal of sanctions that limit Iranian oil exports, is being cited as weighing on the price action. Talks will begin again on the 29^th of November. Iran might be able to increase output by as much as 2M barrels per day if the sanctions are lifted, which would go some way to closing the current gap between the global supply of oil and the global demand for oil.

A stop run/technical selling may also have contributed to the pace of the recent drop; $81.00 was a key area of support that had held up on multiple occasions over the last two weeks and there may have been a number of stops in the $80.00-$81.00 region that got triggered. Also, when WTI broke below $82.00, it appears to have also dropped under a long-term upwards trendline, which may have also exacerbated the selling pressure.

Bearish Inventory Data

Prior to the acceleration of the sell-off in crude oil markets over the last few hours, prices had already been trading substantially lower on the day. Weekly Private API inventory data showed larger than expected build in both crude oil and distillate stocks in the US on Tuesday and official inventory data from the US EIA on Wednesday confirmed these builds. According to the EIA, crude oil inventories rose by 3.3M barrels. Market commentators said the bigger than expected build in crude oil stocks weighed on crude oil prices on Wednesday, though it should be noted that, according to the EIA, gasoline stocks fell to their lowest since 2017 and crude oil stocks at the Cushing Oklahoma storage hub were at their lowest in three years.

OPEC+

This is indicative of the fact that global oil market conditions remain tight, with global demand now thought to be back above 100M barrels per day, while supply continues to lag by a few million barrels per day as OPEC+ increases output at a slower pace than the recent recovery in demand. For this reason, some might see Wednesday’s drop in crude oil prices as a good dip-buying opportunity. But the proximity of Thursday’s OPEC+ meeting might keep traders hesitant.

The cartel is not expected to cave to international pressure to increase oil output at a faster pace and various member state oil ministers have signaled that they think it appropriate to stick to the current plan whereby output is lifted at a pace of 400K barrels per day/month. They might cite the recent outbreak of Covid-19 infections (which is touted to already be more widespread than at any other time since the initial outbreak in 2020), which threatens to send the country back into a nationwide lockdown, as a reason for their cautious approach.