The black liquid declined in the Asian session as China, one of the largest oil consumers in the world, released its gasoline and diesel reserves, which eased concerns over tight global supply.
Brent crude futures, the global benchmark for oil is down 0.41%, currently trading at $83.38 a barrel. This comes after gaining 6 cents on Friday.
U.S. benchmark, the West Texas Intermediate (WTI) crude futures is also down 0.55%, currently trading at $83.11 a barrel. This also comes after the benchmark gained 76 cents on Friday.
Reasons for the decline
China’s National Food and Strategic Reserves Administration, in an official statement, stated that the country has released reserves of two fuels. It stated that they were released in order to increase market supply and support price stability.
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Another reason for the decline in oil prices could be that investors are taking profits ahead of the scheduled Organization of Petroleum Exporting Countries and its allies (OPEC+) meeting on the 4th of November.
Although many analysts expect them to stick to a plan to add 400,000 barrels per day of supply in December, however, with increasing appeals from the Biden administration to the OPEC+ to increase oil supply and the improved vaccination efforts from developing nations, some investors have decided to reduce their oil exposure.
The U.S. Commodity Futures Trading Commission (CFTC) stated on Friday that money managers cut their net long U.S. crude futures and options positions in the week to Oct. 26.
What you should know
Oil prices rallied to multi-year highs last week, due to the decision by the OPEC+ to maintain its planned output increase rather than raising it on global supply concerns.
U.S. President Joe Biden on Saturday urged major G20 energy-producing countries with spare capacity to boost production to ensure a stronger global economic recovery as part of a broad effort to pressure OPEC+ to increase oil supply.
But Iraq’s state oil marketing company, SOMO, said on Saturday that Iraq sees no need to take any decision to increase its production capabilities beyond what has already been planned for OPEC+ countries.
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What they are saying
Chiyoki Chen, chief analyst at Sunward Trading stated, “Behind the selling was China’s release of fuels reserves, which reflected Beijing’s intention to stabilise oil prices, just like coal prices. Also, investors took profits ahead of an OPEC+ meeting.”
Hiroyuki Kikukawa, general manager of research at Nissan Securities stated, “Investors will likely resume buying after confirming the OPEC+ decision on Thursday.”
Conclusion
Spurred by rising oil prices, U.S. energy firms added oil and natural gas rigs for the 15th month in a row in October, taking them to the highest since April 2020, energy services firm Baker Hughes Co said on Friday.
Exxon and Chevron are looking to add drilling rigs in the Permian shale basin after sharply cutting crews and output in the region last year, the companies said on Friday.
Investors are advised to trade the energy market carefully this week as market volatility is expected to be at an all-time high.
