Oil Retreats From Two-Month High as Supply Ample Despite Risks

Oil retreated from the highest close in almost two months on signs global markets remain comfortably supplied despite deepening losses in Venezuela and Iran.

West Texas Intermediate futures fell as much as 1.9 percent amid speculation the 4.2 percent surge in the past two sessions wasn’t justified. While government data showed U.S. crude stockpiles tumbled last week, inventories of fuels like gasoline and distillates jumped. That’s overshadowing a warning from the International Energy Agency that prices may climb as American sanctions hit Iranian exports and Venezuela’s economy unravels.

“Prices were higher yesterday, but the Energy Department weekly in my opinion had some very concerning bearish elements to it,” said Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug, Switzerland.

Oil has climbed over the past month, with Brent in London briefly breaking past $80 a barrel on Wednesday, as the impending sanctions on Iran start removing barrels from markets. Shrinking U.S. inventories combined with slowing production growth are also raising fears over a global supply crunch. Still, OPEC warned this week that escalating trade tensions and a crisis in emerging markets could hurt oil demand, keeping investors guessing what path the group will take.

WTI for October delivery traded at $69.69 a barrel on the New York Mercantile Exchange, down 68 cents, at 9:01 a.m. local time. The contract climbed $1.12 to $70.37 on Wednesday, the highest close since July 20. Total volume traded was about 20 percent above the 100-day average.

Brent for November settlement lost 56 cents to $79.18 a barrel on the ICE Futures Europe exchange. The global benchmark traded at a $9.79 premium to WTI for the same month.

OPEC and its allies will meet in Algiers this month to assess global oil markets after having agreed to increase output at their last meeting in June. Russian Energy Minister Alexander Novak said the nation has the capacity to set a new production record, but it will discuss supplies with the group because it’s in everyone’s interest to keep the market balanced.

In the U.S., crude inventories dropped by 5.3 million barrels to 396.2 million last week, the lowest since February 2015, according to Energy Information Administration data. Stockpiles in Cushing, Oklahoma, declined for the first time in five weeks.

Yet inventories of gasoline jumped by 1.25 million barrels, and those of distillates by 6.16 million barrels, the EIA data showed.

“Oil prices should not have rallied on the back of the data and maybe this overreaction is being corrected,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

Meanwhile, Hurricane Florence could reach the coast near Wilmington on Friday, threatening fuel markets along the U.S. East Coast. Duke Energy Corp. warned of power loss in North and South Carolina, with the hurricane posing a threat to some pipelines running through the region.

Some other key oil-market figures, news and events:

The CBOE/Nymex Oil Volatility Index rose for a third day to the highest level since July 19 on Wednesday. The U.S. likely overtook Russia and Saudi Arabia in terms of oil output to become the world’s biggest producer earlier this year, according to the EIA. Venezuela’s oil production could tumble to just 1 million barrels a day by the end of the year, the IEA said in its monthly oil market report.