Oil declines on Druzhba pipeline resumption, COVID concerns

On Wednesday, oil prices settled more than one US dollar lower after Russian oil shipments via the Druzhba pipeline to Hungary resumed operation and rising COVID-19 cases in China weighed on investors’ sentiment.

Contracts to deliver West Texas Intermediate crude in December closed at their lowest price since October 25, according to Dow Jones Market data. Prices stayed flat over the past three months after retreating from highs around $110 a barrel in June.

Brent crude futures settled a dollar lower at $92.86 a barrel, down 1.1% and WTI crude futures slid by $1.33, or 1.5%, to settle at $85.59 a barrel. Oil markets abandoned early gains after statements by Hungarian Foreign Minister Peter Szijjarto that flows through the Druzhba oil pipeline from Russia had resumed after a temporary outage.

Oil markets later recovered some losses after US crude stocks fell more than expected on the back of heavy refining activity. The Energy Information Administration announced that US crude inventories retreated by 5.4 million barrels last week, compared with expectations for a 440,000-barrel drop.

In addition, tanker-tracker Petro-Logistics said in a report that exports from the Organization of Petroleum Exporting Countries (OPEC) have fallen significantly so far this month.

Various geopolitical influences – from an oil tanker being hit by a bomb-carrying drone off the coast of Oman, to Russia tensions – are being largely dismissed in favor of a focus on the more bearish elements such as weak Chinese economic data and demand.

Iraq plans to raise its production capacity to around 7 million barrels a day in 2027 according to state-owned oil marketer SOMO, although any increases will be in coordination with OPEC.

The International Energy Agency (IEA) forecast demand growth to slow to 1.6 million bpd in 2023 from 2.1 million bpd this year.