Oil prices slumped Friday after hitting seven-year highs this week as investors took profits after rising US crude and fuel stockpiles, but the overall mood remained solid amid supply constraints and concerns over geopolitical risks.
Brent crude futures fell $1.52, or 1.7%, to $86.86 a barrel as of 0606 GMT. The contract had previously dropped as much as 3%, the biggest drop since December 20. The global benchmark hit its highest level since October 2014 at $89.50 a barrel on Thursday.
West Texas Intermediate (WTI) crude futures fell $1.66, or 1.9%, to $83.89 a barrel. The contract, which hit its highest level since October 2014 on Wednesday, early hours fell as much as 3.2%, the biggest drop since December 20.
The recent rally in crude oil prices wore off as Brent and WTI ended the trading session with weak losses on Thursday, but both indicators have already gained more than 10% this year.
An unexpected rise in US crude inventories prompted investors to take profits, and until yesterday there was an extreme rally.
Losses were limited as the expectations of continued tightness in supply due to the recovery in demand and geopolitical tensions in Russia, Ukraine and the Middle East made investors cautious about selling.
Gasoline inventories in the United States, the world’s largest oil consumer, rose 5.9 million barrels to its highest level since February 2021, according to the U.S. Energy Information Administration (EIA). Crude oil inventories increased by 515,000 barrels last week, contrary to industrial expectations.
The EIA also reported a slight decrease in refinery movements, indicating that demand for crude oil has fallen.
A drop in equity markets also weighed on sentiment amid concerns that the Fed may move aggressively to raise rates this year.
Oil supply concerns escalated this week after Yemen’s Houthi group attacked the United Arab Emirates, OPEC’s third-largest producer, and Russia, the world’s second-largest oil producer, formed a military buildup near the Ukrainian border, fueling fears of an invasion.
With the Omicron effect waning, the oil market concentrated on production. Demand is expected to continue despite the spread of the Omicron coronavirus variant.
Oil supply will soon exceed demand as some producers are ready to pump at or above all-time highs, the International Energy Agency (IEA) said on Wednesday.