Oil Prices Dip Further Amid Inventory Surge and Risk-Off Market Mood

Gerik

Summary:

Oil prices declined for a second consecutive day, pressured by a sharp rise in U.S. crude inventories and broad-based weakness in global financial markets...

Inventory Surge Fuels Short-Term Pressure

Oil markets faced downward pressure after the American Petroleum Institute (API) reported a significant 6.5 million barrel increase in U.S. crude inventories, the largest build since late July. This unexpected surge raised concerns about oversupply in a market already grappling with excess capacity. West Texas Intermediate (WTI) approached $60 a barrel, while Brent hovered around $64, extending the losses from Tuesday’s trading session.

The upcoming release of official data by the U.S. Energy Information Administration (EIA) is highly anticipated, as it typically carries more market weight than the API report. Traders are closely watching whether the EIA will confirm the inventory build, which would likely reinforce the bearish momentum.

Global Market Selloff and Stronger Dollar Compound Losses

Beyond the oil-specific fundamentals, the broader market environment added to the pessimism. A global selloff in equities and a strengthening U.S. dollarnow at a five-month highsignaled increased investor caution. This “risk-off” sentiment not only dragged on oil but also affected other commodities, as capital flowed into safer assets amid global growth uncertainties.

Asia-Pacific equities were particularly hit, following declines in U.S. stock futures. This broader financial anxiety adds to fears that slower global economic activity could suppress energy demand into early 2026.

OPEC+ Output and Supply Glut Concerns Persist

Oil prices have fallen around 14% year-to-date, primarily due to rising supply from both OPEC+ and non-member producers. Although OPEC+, led by Saudi Arabia and Russia, decided on a modest output increase for December, the group indicated a potential pause on hikes in Q1 2026. Nevertheless, the market continues to grapple with fears of a persistent global glut, especially in the face of softening demand indicators from key economies.

Geopolitical tensions added a layer of complexity. Ukraine’s recent attacks on Russian oil facilities, including the Lukoil refinery in Nizhny Novgorod and other plants like Tuapse and Saratov, have triggered short-term supply disruptions. Russia’s seaborne exports declined in October, the steepest drop since January 2024, largely due to sanctions by the U.S. on Rosneft and Lukoil that led buyers like Inxzdia and China to reduce purchases.

However, energy traders remain skeptical about lasting supply loss. Gunvor CEO Torbjörn Törnqvist remarked that disrupted Russian oil eventually re-enters the market through alternative routes, reinforcing a long-standing view that geopolitical disruptions often have transitory price effects.

The latest drop in oil prices reflects a convergence of bearish short-term factorsrising U.S. inventories, a stronger dollar, global equity weakness, and near-term OPEC+ oversupply. While geopolitical tensions in Russia inject volatility, market sentiment appears more focused on immediate indicators of demand weakness and inventory surpluses. The upcoming EIA data will be a key test for the market’s next direction.

Source: Bloomberg

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