Oil prices have tumbled as market sentiment took a downturn following rising inventories the US.
Both major benchmarks have dropped around 1.5 per cent today, with Brent Crude prices slipping to just above $87 per barrel.
Earlier this week, prices were closing in on $90 after a sustained market rally amid increasing demand and reduced Omicron fears.
WTI prices have fallen to $84.17 per barrel, with four successive days of gains coming to a close.
Oil prices have enjoyed a wild journey in recent months.
The markets rallied last year as lockdowns across developed economies were lifted, but plummeted following the emergence of the Omicron variant with over 10 per cent drops on both benchmark last year.
Tightening supplies and resilient demand has since powered oil to a further market rally.
Key producer OPEC+ has consistently been missing its output targets, while soaring Omicron cases has failed to result in comparable increases in hospitalisations and deaths.
While analysts have remained largely bullish about the potential peaks of oil prices this quarter and potential $100 prices, increased supplies Stateside have dampened markets for now.
However, Commerzbank have argued prices were becoming “increasingly decoupled from the fundamental data”, with the IEA and OPEC not pointing to supply shortages in coming months.
It believed markets had been reacting only to news supporting higher prices – ignoring key headwinds such as the the world’s largest oil producer ramping up supplies.
According to data published by the country’s department of energy, US crude oil stocks had risen unexpectedly by 515,000 barrels last week – this was the first inventory build in two months.
Its gasoline stocks also grew by 5.9m barrels, a considerably sharper increase than anticipated, continuing a steep rise in gasoline stocks, which have increased by 35m barrels since November
US President Joe Biden is desperate to boost supplies and reduce the cost of living for middle and low income Americans, with key mid-terms in November.
Analyst Carsten Frisch said: “The question now is whether the correction will continue or whether the lower price level will be viewed by market participants as a buying opportunity. Both scenarios are possible as things currently stand.”
The current drop was also foreseen by Ole Hansen, head of commodity strategy at Saxo Bank.
Speaking to City A.M. about the potential direction of oil prices, he said: “Oil will most likely not reach $100 this quarter, let alone the next. Expect some consolation below 90 during the coming weeks.”
By contrast, Craig Erlam, senior market analyst at OANDA, does not consider today’s price fall as a “game-changer”.
He remains doubtful that above-expectation increases in supplies in the US or White House policy will influence prices significantly.
Instead, Erlam considered the key to be braking the $90 barrier – a milestone that stoked some resistance from investors.
He said: “It’s a big psychological barrier as once that goes, people are just counting down the days until we have triple-figure oil. It’s a big deal, but one we’ll have to wait a little longer for. The question is how long until traders jump back in. Given the fundamentals, I don’t think we’ll be waiting too long.”