Oil Holds Sharp Drop After US Stockpiles Expand to 10-Month High

Oil held the bulk of a large decline amid a slew of conflicting signals that ranged from rising stockpiles to tensions in the Middle East and the reimposition of US sanctions on Venezuelan crude.

Oil Holds Sharp Drop After US Stockpiles Expand to 10-Month High

Global benchmark Brent traded above $87 a barrel after slumping by 3% on Wednesday, while West Texas Intermediate was near $83. US crude inventories rose by 2.7 million barrels last week, hitting the highest level since last June, while gauges of fuel demand declined.

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The weak US data overshadowed the impact of geopolitical tensions in the Middle East as traders await Israel’s response to Iran’s unprecedented recent attack. At present, there’s a premium of $5 to $10 a barrel baked in, but without escalation, prices may fall, Goldman Sachs Group Inc. said

US sanctions were also in focus. President Joe Biden’s administration has reimposed restrictions on Venezuelan oil, ending a six-month reprieve in a move that may hamper flows from the South American nation. At the same time, new sanctions on Iranian oil were included as part of a foreign aid package released by House Republicans that is slated for a floor vote later this week.

Oil remains comfortably higher year to date as supply cuts by OPEC members and geopolitical risks in the Middle East and Russia have combined to aid prices. The run-up had ignited speculation that crude may regain $100 a barrel, although the ascent has now faltered, with some market metrics including timespreads pointing to slightly less tight conditions.

“The market appears to have discounted the possibility of an Israeli retaliation to Saturday’s Iranian attack,” said Vandana Hari, founder of Vanda Insights. The midweek drop suggests “that the latest bout of risk premium from heightened Israel-Iran tensions has eroded,” she said.

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