By Barani Krishnan

Investing.com – Barely 24 hours after oil’s sharpest selloff since early October, bulls were back to buy the dips in crude and bring U.S. crude to a higher settlement on Thursday.

Brent ended lower on Tuesday for the second day in a row. With one more day before the close of the week it is not surprising that both Brent and WTI have lost their gains since Tuesday. The market could then post its tenth consecutive week of gains.

Thursday’s recovery from session lows were aided by two things.

The first was oil bulls’ realization that the three-year low in crude inventories at the Cushing, Oklahoma storage hub was a better play on the market’s psychology than any possibility of Iran and Western nuclear inspectors achieving at the negotiating table after November a deal that could remove sanctions on Tehran’s crude exports.

This was the second magic phrase OPEC+ uses before each meeting. It is the mantra that says, “The supply will be even less in the next month or quarter.” 

And right on cue, a headline screamed on Thursday as the so-called Joint Technical Committee of the oil producing cartel got together for a meeting: “OPEC+ SEES A TIGHTER 4Q OIL MARKET IN PRELIMINARY DATA – DELEGATE”. On November 4, the OPEC+-led oil ministers will lead the broader cartel.

Not surprisingly, U.S. crude’s settled up 15 cents, or 0.2%, at $82.81 per barrel. WTI dropped to $80.67 in early trading. WTI fell 2.2% on Monday to record its largest loss in the last three weeks.

The London-traded benchmark oil price ended the day at $84.32, down 0.3% and 26 cents respectively. After losing 2% Wednesday, Brent fell to $81.62 in its third week.

“The rally has looked overcrowded for some time now so the correction we’ve seen doesn’t come as a great surprise,” Craig Erlam, analyst at online trading platform OANDA, said. “The question though is whether that’s it? It’s interesting how quickly traders have bought the dip.”

Crude prices fell Wednesday as the possibility of Iran holding nuclear talks with Western powers returned to headlines, amid Tehran’s bid to free itself from U.S. sanctions prohibiting the sales of its oil to the world.

Markets were also affected by the weekly rise in U.S. crude stockspiles. The EIA (or Energy Information Administration) reported that the stockpiles had increased twice as fast than expected. This was due to refiners increasing crude oil imports last Wednesday in order to produce more gasoline and diesel while the exporters of crude sent out less.

Fair enough, not all of the oil’s negative effects have been able to last long enough for a significant correction in crude oil prices.

For instance, Iran’s hardline regime under President Ebrahim Raisi has constantly upended Western efforts to reign in the Islamic Republic’s nuclear program.

And while U.S. crude inventories may have risen in the latest week, stockpiles at the Cushing hub — a more important metric sometimes to the market — fell another 4 million barrels, hitting lows since 2018.

To put it in perspective, every daily correction of 1-2 points on Brent or WTI has been often overturned by an average 4-5% increase by the weekend.

Although the overall narrative regarding oil seems bullish, the positive aspects are often magnified by traders on the longer side to make the rally seem outlandish.

OPEC+ is a group that helps to support the oil narrative. Their mission is to make sure that crude oil production worldwide remains below 5% of current needs. This would constitute a deliberate suppression of natural production in order to make a market more lopsided. But in OPEC terminology, it’s called “rebalancing”.