Oil prices have slumped after US crude inventories rose for the sixth straight week, with the Brent benchmark starting to test the US$80 floor while the West Texas Intermediate has already swung below the line.

The US Energy Information Administration reported that crude stocks had increased by 3.3 million barrels, while hedge funds have halted their oil buying spree on hints that the price rally has finally run out of steam.

Deficits in both crude and products inventories have also narrowed slightly, indicating that the supply situation could be stabilising.

More broadly, the US Federal Reserve has said it will start tapering bond buying this month, which could slash speculative buying in riskier assets.

However, significant drops in crude prices are unlikely as steep price drops are typically associated with broader weakness in the economy.

Oil prices could still rise

That’s not to say that there is no chance that crude oil prices will climb again.

US crude inventories are still depleted, being some 57 million barrels down from where they were at the beginning of 2021 with most fund managers maintaining long positions in cases prices surge again.

Inventories of refined products have also fallen as refining lags behind the return of petroleum consumption to pre-pandemic levels.

OPEC+ has also ignored calls to boost crude oil production with the cartel deciding to continue easing their collective crude oil production cuts by just 400,000 barrels per day next month.

Piper Sandler chief market strategist told CNBC that the oil price rally still has room to run.

“We’re coming into the winter months and it looks like to me, from looking at an oil chart, we could see oil above the US$90 level. It could be closer to US$110 to US$115,” he noted.

Meanwhile, Rystad Energy told Reuters that the energy crunch is nowhere close to subsiding and that it expected “prevailing strength in oil prices in November and December as supply lags demand and as OPEC+ stays on the sidelines”.

The Bank of America has predicted that Brent crude to climb to US$120 per barrel by June 2022 while Goldman Sachs has flagged the benchmark could top its previous US$90 forecast by the end of this year.