Wednesday 6 November 2019 11:47 am

Oil prices drop back after three day surge

After three days of growth oil prices dropped this morning, as US crude stocks nearly tripled against analyst expectations.

Inventories rose by 4.3m barrels last week to 440.5m barrels, far higher than forecasts of a 1.5m barrel increase.

Read more: OPEC chief optimistic for 2020 as oil price rises one per cent

An easing in US-China tensions, as hopes that a “phase-one” trade deal would be struck before the end of the month, had led the three-day rally. 

Yesterday US commerce secretary Wilbur Ross told reporters he was “hopeful that phase one will be the precursor of a much more robust set of agreements.”

Analysts hope that optimism over a potential deal would keep the falling prices in check, with China expected to press the US for further concessions.

According to Ipek Ozkardeskaya, senior market analyst at London Capital Group, dropping tariffs could generate a minimum of $20bn worth of farm purchases.

“Investors will continue to take cues from US-China trade talks,” ANZ Research said in a note.

Stephen Innes, Asia market strategist at AxiTrader, said that a failure to roll back tariffs “could prompt a significant bearish shift in sentiment.”

Yesterday OPEC chief Mohammed Barkindo said that he was more optimistic about the oil market outlook than he had been in October:

He said: “Based on the preliminary numbers, 2020 looks like it will have upside potential. There are definitely brighter spots. The numbers are looking more refined and the picture is looking brighter.”

Read more: Oil giants face vast cuts to hit climate targets

OPEC is due to meet in December, along with allies including Russia, to review output policy. In an attempt to increase oil prices, the group has since January implemented a deal to cut output by 1.2m barrels per day until March 2020.

According to the producer group’s 2019 World Oil Outlook, rising stocks of US shale and other rival sources will squeeze OPEC’s supply in the next five years.

Main image credit: Getty