Oil prices slump after large increase in U.S. stocks

By David Gaffen

NEW YORK (Reuters) - Oil prices fell on Wednesday, with U.S. futures slipping below $70 a barrel for the first time in a month, after U.S. stockpiles rose by 6.5 million barrels, almost triple what analysts had forecast, while exports dropped.

U.S. light crude oil fell to $69.96 a barrel as of 10:54 a.m. EST (1454 GMT), down $1.96, or 2.7 percent. Oil had been rising on worries about Iranian sanctions and tensions between the United States and Saudi Arabia after the death of Saudi journalist Jamal Khashoggi.

"This market is dangerously close to $70. If it goes down through $70, I think some of that speculative position may have interest in getting out, and that could accentuate the downside," said Bob Yawger, director of futures at Mizuho in New York.

 

Brent crude was down $1.84, or 2.2 percent, to $79.66 a barrel, after gaining $1.15 over the previous three sessions. The global benchmark is trading around $5 below a four-year high of $86.74 reached on Oct. 3.

Crude stocks rose 6.5 million barrels for the week through Oct. 12, and exports were down to 1.8 million bpd, the U.S. Energy Information Administration said, in a report analysts characterized as bearish. Oil futures were already sinking in anticipation of larger crude inventories and in tandem with recent declines in equity markets worldwide.

A Reuters survey of eight analysts estimated crude stocks rose by about 2.2 million barrels last week. [nL3N1WW4V7] On Tuesday, preliminary numbers by the American Petroleum Institute indicated that U.S. crude inventories fell just 2.1 million barrels. [API/S]

The scandal over the disappearance of prominent Saudi critic and journalist Jamal Khashoggi, who disappeared two weeks ago after entering the Saudi consulate in Istanbul, had underpinned oil markets earlier in the week.

U.S. lawmakers pointed the finger at the Saudi leadership and Western pressure mounted on Riyadh to provide answers, but President Donald Trump's comments suggested that White House may not take additional action against the Saudis, particularly after Saudi Arabia has said it will conduct an investigation.

Investors worry Saudi Arabia could use oil supply to retaliate against critics. Jim Ritterbusch, president of Ritterbusch and Associates, said Saudi Arabia could cut as much as 500,000 barrels per day of crude production "as a warning shot" to discourage U.S. sanctions.

A claim by the United States that it aims to reduce Iran's oil exports to zero is a "political bluff", the head of the state-run National Iranian Oil Company was quoted as saying on Wednesday.

New U.S. sanctions on Iranian oil exports start on Nov. 4, while Iran has accused Saudi Arabia and Russia of breaking an OPEC-led agreement on output cuts by producing more crude.

(Reporting by David Gaffen in New York; additional reporting by Christopher Johnson in London and Osamu Tsukimori in Tokyo; Editing by David Gregorio)