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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Friday and in a position to finish lower for a third straight week as new concerns have been raised about the market being oversupplied. The markets also remain pressured by extreme stock market volatility which is fueling hedge fund liquidation and margin call selling.

At 0746 GMT, December WTI Crude Oil is trading $66.68, down $0.65 or -0.98% and January Brent Crude Oil is at $76.27, down $0.61 or -0.79%.

New concerns about an oversupplied market were raised on Thursday when Saudi Arabia’s OPEC governor said that the oil market could face oversupply in the current quarter.

“The market in the fourth quarter could be shifting towards an oversupply situation as evidenced by rising inventories over the past few weeks,” Adeeb Al-Aama told Reuters.

Saudi Arabia Energy Minister Khalid Al-Falih further added that there could be a need for intervention to reduce oil stockpiles after increases in recent months.

In other bearish news, U.S. crude oil stockpiles rose last week for the fifth consecutive week, while gasoline and distillate inventories fell, the U.S. Energy Information Administration (EIA) said this week.

Still some traders believe the nearly $10 per barrel drop in Brent crude seen over October is a little overdone with much of the selling pressure being fueled by the global sell-off in equities and broader risk-off sentiment in the market.

Crude oil in the short-run is likely to be manipulated by heightened stock market volatility, however, at its core, traders will still be watching supply as it relates to the start of U.S. sanctions against Iran’s oil exports on November 4.

The crude oil market is still fragile due to limited spare capacity so any supply disruption is likely to trigger a spike to the upside in prices. The volatility in the stock market just has to stabilize in order to encourage oil traders to return to the traditional fundamentals. The shift in investor sentiment has caused oil traders to move away from more traditional fundamentals and focus on a slew of outside events.

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