WTI Dips Amid Overproduction and Resurging China COVID Cases

Oil prices drop for the third time on Wednesday amid worries about China’s COVID cases following a report of rising US crude stockpiles.

West Texas Intermediate slumped 0.6% to $88.38 a barrel after falling for two consecutive days, while Brent crude sank 0.5% to $94.92 a barrel.

Market sources cite figures from the American Petroleum Institute (API), which showed that US crude inventories soared by around 506 million barrels for the week until November 4. This is amid China’s swelling COVID outbreak, which forced the government to initiate mass testing and even harsher lockdowns.

Beijing, China’s capital, recorded 78 new cases on Wednesday as the infection hits its highest in more than five months, while cases in Guangzhou and other cities have also surged.

Before this, China was expected to relax its COVID restrictions, but Chinese health officials announced over that weekend that they would stick to their approach.

According to an analyst, the slackening in China’s demand has a major impact on oil futures despite the tight supply.

Managing partner at SPI Asset Management noted, “With that (China reopening) narrative getting pushed back, coupled with a considerable build on US inventory data, implying dimming US demand, the recessionary crews are back out in full force this morning in Asia.”

Meanwhile, the US Energy Information Administration (EIA) is expected to release its official inventory at 10:30 AM Pacific time.

EIA Cuts 2023 US Crude Oil Production by 21%

On Tuesday, EIA cut its projected crude output growth for next year by 21% following the warning of oil producers about supply chain constraints due to rampant inflation.

EIA cut its oil growth outlook by 320,00 bpd to 1.16 million bpd for 2023 and raised the projection by 140,000 bpd to 2.6 million bpd for 2022.

EIA said, “Based on the S&P Global macroeconomic model, we now expect US GDP will fall slightly in 2023, which we forecast will contribute to a drop in total US energy consumption next year.”

“We expect renewable sources to provide 22% of US electricity generation in 2022 and 24% in 2023 as generation from natural gas declines from 38% in 2022 to 36% in 2023. The increase in renewables generation comes mostly from solar and wind capacity additions. US distillate fuel inventories average 17% below the five-year average in our forecast for 2023. We estimate distillate inventories were 104 million barrels at the end of October, the lowest end-of-October level since 1951,” the agency added.