Following an almost 4% increase the day before, oil prices declined on Wednesday as concerns about an impending output cut by the Organization of the Petroleum Exporting Countries and Allies, also known as OPEC+, subsided.
After climbing 3.9% on Tuesday, the benchmark Brent crude futures price slipped 40 cents, or 0.4%, to $99.82 a barrel by 0337 GMT.
The U.S. West Texas Intermediate crude futures contract was down 27 cents, or 0.29%, at $93.47 a barrel, having jumped 3.7% the previous day.
Both contracts soared on Tuesday after the energy minister of de facto OPEC leader Saudi Arabia flagged the possibility of supply cuts to balance a market it described as “schizophrenic”, with the paper and physical markets becoming increasingly disconnected, according to Reuters.
“While Abdulaziz bin Salman’s comment may have achieved more than putting a floor under crude prices, we expect it to follow the law of diminishing returns, unless it is followed up by more signals or action from OPEC+ to restrain output,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
The math involved in reducing output will be more challenging than normal, not to mention the politics of it, Hari continued, as OPEC+ is already providing approximately 2.8 million fewer barrels per day than its monthly objective.
Potential OPEC+ production cuts may not be imminent and are likely to coincide with the return of Iran to oil markets should that country clinch a nuclear deal with the West, nine OPEC sources told Reuters on Tuesday.
A senior U.S. official told Reuters on Monday that Iran had dropped some of its main demands on resurrecting a deal.
“Tuesday’s rally was overdone as many investors knew it would take several months for Iranian oil to flow into the international market even if an agreement to revive Tehran’s 2015 nuclear deal was made, meaning OPEC+ would not trim output so quickly,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.
“Still, there is not much room for the market’s downside due to robust heating fuel demand for the winter,” he said, citing that the recent rally in the U.S. heating oil market and surging natural gas prices boosted expectations for stronger heating oil demand and tighter crude supply.
U.S. gas prices shot above $10 for the first time in about 14 years due to a surge in prices in Europe, where tight supplies persist.
Underlining tight supply, U.S. crude stockpiles fell by about 5.6 million barrels for the week ended August 19, according to market sources citing American Petroleum Institute figures on Tuesday, against analysts’ estimate of a drop by 900,000 barrels in a Reuters poll.
However, while distillate supplies increased by roughly 1.1 million barrels, gasoline inventories increased by about 268,000 barrels.
