US crude slumps below US$70 a barrel after large stock build

[NEW YORK] Oil prices fell on Wednesday, with US futures settling below US$70 a barrel for the first time in a month, after US crude stockpiles rose 6.5 million barrels, almost triple what analysts had forecast, while exports dropped.

Oil had been rising this week on worries about Iranian sanctions and tensions between the United States and Saudi Arabia after the death of Saudi journalist Jamal Khashoggi.

US crude oil slumped US$2.17, or 3 per cent, to settle at US$69.75 a barrel.

"Today's price decline to below our expected support at the US$70 level would appear to set the trade up for a weaker pricing environment than we had anticipated," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Bob Yawger, director of futures at Mizuho in New York, said some speculators may have interest in getting out when prices are below US$70, which could accentuate the selloff.

Volume was above average on Wednesday, with more than 627,000 US crude contracts changing hands, compared with a 10-month daily average of about 583,000 contracts.

Brent crude also dipped below US$80 a barrel but ended at US$80.05, US$1.36 or 1.7 per cent lower. The global benchmark is trading nearly US$7 below a four-year high of US$86.74 reached on Oct 3.

US crude stocks rose 6.5 million barrels last week, the fourth straight weekly build, as exports were down to 1.8 million barrels per day, the US Energy Information Administration said, in a report analysts characterised as bearish.

Inventories rose sharply even as US crude production slipped 300,000 bpd to 10.9 million bpd last week, which analysts attributed to the effects of offshore facilities closing temporarily for Hurricane Michael.

"A tick higher in refining activity and a drop in production due to hurricane activity in the Gulf was not enough to halt a fourth consecutive climb in stocks," said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.

The scandal over the disappearance of prominent Saudi critic and journalist Jamal Khashoggi, who disappeared two weeks ago after entering the Saudi consulate in Istanbul, underpinned oil markets earlier in the week.

US lawmakers pointed the finger at the Saudi leadership, suggesting sanctions could be possible.

Western pressure mounted on Riyadh to provide answers, but President Donald Trump's comments suggested that White House may not take additional action against the Saudis, particularly after Saudi Arabia said it will conduct an investigation.

On Wednesday, Mr Trump denied that he is giving cover to the Saudis, and that the results of the investigation into Khashoggi's death should be known within a week.

Investors worry Saudi Arabia could use oil supply to retaliate against critics. Such a move would roil markets, as the Saudis have not used oil as a policy weapon since the oil embargo of the early 1970s, and the market is already anticipating reduced supply when sanctions on Iranian oil exports resume on Nov 4.

Iran has accused Saudi Arabia and Russia of breaking an Opec-led agreement on output cuts by producing more crude, which will thus hurt their market share.

REUTERS