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Surging crude supplies tank oil prices amid looming diplomatic crisis with Saudi Arabia

By Nicholas Sakelaris
Surging crude supplies tank oil prices amid looming diplomatic crisis with Saudi Arabia
Oil prices tanked Wednesday after the Energy Information Administration released updated crude supply numbers. File Photo by Ekina/Shutterstock

Oct. 17 (UPI) -- The United States added another 6.5 million barrels to its stockpiles last week, sending crude oil prices tumbling despite concerns about relations with Saudi Arabia.

WTI lost $1.76 Wednesday, losing the gains made the previous day to trade at $70 by mid-morning. Brent fell $1.56 to trade at just below $80.

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The Energy Information Administration said crude oil inventories (excluding the Strategic Petroleum Reserve) were 416.4 million barrels for the week ending Oct. 12. That's 2 percent higher than the five year average for this time of year. Gasoline inventories were down 2 million barrels from the previous week but are still 7 percent higher than the five-year average for this time of year.

Exxon Mobil Corp., Chevron Corp. and other major oil companies all saw losses on Wall Street after the EIA's weekly report was released.

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The diplomatic crisis over Saudi Arabia's alleged involvement in the disappearance of journalist Khashoggi could affect oil prices, too. Some have speculated that the Saudis could slow oil production to force the price up as punishment for any sanctions placed on the kingdom.

Caroline Bain, a chief commodities economist with Capital Economics, said it's unlikely Saudi Arabia would do that because it has a unique opportunity to claim more marketshare when its bitter OPEC rival, Iran, starts dealing with its own sanctions. The U.S.-imposed sanctions go into effect Nov. 4 and prohibit countries from buying Iranian crude exports.

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Sanctions or not, Iran would take advantage of any slowing of Saudi production, analysts said.

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In a worse-case scenario, the Saudis could cause an "oil shock" where prices soar to $150 a barrel, Bain said. It would be similar to the 1973 oil crisis that killed the muscle car era.

EPA: No urgency to conserve energy

The shale boom propelled the United States to become the top energy producer in the world and has "reduced the urgency of the U.S. to conserve energy," the EPA said

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"The U.S. is currently producing enough oil to satisfy nearly all of its needs and is projected to do so or become a net energy exporter," the EPA said.

The EPA has proposed new fuel economy standards that could go into effect in March, freezing the 2020 target of 43.7 miles per gallon for six years. The rules would increase U.S. oil demand by 500,000 barrels per day.

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