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By Trend

The weekly inventory rise of one million barrels was not what the market was looking for, and came at a time when production from Saudi Arabia, Kuwait, the UAE, and Iran continues to rise, Ole Hansen, Saxo Bank’s Head of Commodity Strategy believes.

"Oil is back on the defensive," Ole Hansen told Trend. “The fact that Saudi Arabia production has hit a new record and the fact that Iran has increased production to its highest since 2008 is imposing additional pressure on the black stuff.”

First up, crude oil, where the August bull market has been stopped in its tracks by US Energy Information Agency report of a weekly 1.05 million barrel advance in stockpiles, a substantially higher figure than the 1.5m/b contraction that had been foreseen.

US inventories nevertheless rose last week as refinery demand slowed. Inventories at Cushing – the delivery hub for WTI crude oil – jumped by a counter-seasonal 1,2 million barrels, further widening the gap to longer-term averages.

The expert noted that ominously (especially for cash-strapped producers) both Opec and the EIA agree that the rebalancing of world oil markets is being delayed by the overhang of supply. Against that background, a significant price recovery is off the cards and in the immediate term Hansen expects oil to "settle into a range at somewhat lower levels".

“It goes without saying that potential buyers at this stage should probably be patient and not get to aggressively involved unless we see oil make a break above the aforementioned levels where it was rejected earlier in the week,” he said.

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