U.S. West Texas Intermediate and international-benchmark crude oil futures are edging lower on Wednesday shortly before the regular session opening. The market is hovering near its low for the week, but Monday’s gap still exists. This is essentially the premium that traders have priced into the market given this weekend’s attack and the heightened volatility surrounding the escalating tensions between the United States and Iran.
Prices Plunge After Saudis Announce Repair Progress
Crude oil prices fell 5% on Tuesday after Saudi Arabia signaled output could return to normal by the end of the month. Energy minister Prince Abdulaziz bin Salman said in a press conference Tuesday that oil production capabilities were fully restored and that oil output will be back to pre-attack levels by the end of September.
Fifty percent of the oil production loss from the attack has been restored in the past two days, bin Salman said, adding that production capacity would reach 10 million barrels of crude per day (bpd) by the end of this month and 12 million bpd by the end of November.
The CEO of Saudi Aramco, the national oil company, said its Abqaiq oil plants are producing 2 million barrels of oil at the moment.
Further Pressure from API Inventory Build
Crude oil was further pressured on Tuesday after the American Petroleum Institute (API) reported that U.S. crude supplies rose by 592,000 barrels for the week ended September 13. Traders were looking for a 2.1 million barrel draw.
The API also reported gasoline stockpiles rose by 1.6 million barrels versus an estimated draw of 800,000 barrels. Distillate supplies increased 2 million barrels versus an estimate draw of 2 million barrels for the week.
There’s still a price gap on the daily chart which means the market is still up for the week. This gap could remain intact for weeks as traders await progress reports on the Saudi repairs. Any slowdown in progress should drive prices higher. If the repairs more along faster than expected then look for prices to retreat, essentially starting to fill the price gap and return the market to its three month trading range.
The market is still “hot” meaning speculative buyers are present. They are playing for delays in the repairs or an escalation of the tensions between the United States and China.
At 14:30 GMT, traders will get a chance to react to the latest data from the U.S. Energy Information Administration (EIA). It is expected to show inventories dropped 2.1 million barrels the week-ending September 13. Expectations could change because of the API data.
I don’t expect much of a response from the EIA data unless it shows a bigger than expected draw. Furthermore, the data is expected to be skewed the next several weeks because of the attacks on Saudi Arabia.
This article was originally posted on FX Empire
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