Oil Drops to Three Week Low on Rising Supply Fears

By Adedapo Adesanya

Oil prices traded at their lowest in three weeks dropping 3 per cent, impacted by the growing concern of supply from the United States and Iran while coronavirus cases continue to increase in Asia.

Brent crude saw its value lose $2.04 or 2.97 per cent to trade at $66.67 per barrel, while the West Texas Intermediate (WTI) crude futures lost $2.08 or 3.18 per cent to sell at $63.41 per barrel.

The supply fears came as weekly data from the Energy Information Administration (EIA) showed an increase in crude inventories in the largest oil producer, the US, contributing to a drop to the lowest settlement prices in more than three weeks.

On Wednesday, the EIA reported a crude oil inventory build of 1.3 million barrels for the week to May 14 compared with an estimated oil inventory build of a modest 620,000 barrels for the period, as reported by the American Petroleum Institute (API) and also in contrast to a draw of 400,000 barrels reported by the EIA a week earlier.

Analysts had expected an inventory build of 1.68 million barrels for the week to May 14.

In addition, talks between world powers in Vienna, Austria around reviving an agreement that would remove US sanctions on Iran’s crude exports contributed to the market environment.

The latest worry came as a top European Union official said the US and Iran are close to a deal. Mr Enrique Mora, the EU official in charge of coordinating diplomacy in Vienna, said he expects all parties to return to the 2015 agreement before Iran’s presidential elections on June 18.

Iran has already been bringing back output and said it will soon export oil from a new port, which would allow the country to bypass the Strait of Hormuz, adding more supply to the market.

Fears of slowing fuel demand in Asia as COVID-19 cases surge in India, Taiwan, Vietnam and Thailand, prompting a new wave of movement restrictions also affected oil prices.

Uncertainties over inflation also prompted investors to reduce exposure to riskier assets like oil with uncertainties around global supply and potentially lower global demand in the short term.