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(Bloomberg) – Oil resumed its decline after US government data showed growing domestic crude supply and faltering gasoline demand.
Futures in New York fell to $ 37 a barrel after a report from the Energy Information Administration showed domestic crude stocks rose for the first time since mid-July. Inventories at the Cushing, Oklahoma, storage facility rose to their highest level since May and crude production increased.
Declining gasoline and distillate inventories provided a bright spot, but signs that the pandemic-ravaged global economy will take longer than anticipated to recover weighed on US stocks and put pressure on oil prices.
The build-up of crude inventories is a “precursor that we’re not going to see the draws that people were expecting,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “The global demand is just not coming back the way people expected.”
The beginning of September has not been good for oil prices. US benchmark futures have fallen about 13% since the end of August, as gasoline demand is forecast to stagnate with the end of the US summer driving season. Globally, the outlook for crude oil consumption also looks bleak, as S&P Global Platts forecasts oil demand to decline more than 8 million barrels per day this year and is unlikely to return to 2019 levels before 2022.
While US gasoline reserves are gradually approaching normal levels for this time of year, it is primarily the result of poor refinery run rather than more Americans taking to the road. In fact, the four-week moving average of gasoline supplied, an indicator of demand, fell during the first week since late July, according to EIA data. The start of the refinery maintenance season is also clouding the outlook for consumption already ravaged by the pandemic.
“Gasoline inventories are now in the five-year high-low range, which is encouraging, but seasonally, demand is going to drop over the next several weeks,” said Peter McNally, global director of industry, materials and energy at Third Bridge. . “It is entering a weaker period and the underlying fundamentals are not looking very good.”
Prices
- West Texas Intermediate for October delivery fell 75 cents to settle at $ 37.30 a barrel
- Brent for the November settlement lost 73 cents to end the session at $ 40.06 a barrel.
Brent’s six-month timeframe was $ 2.88 a barrel in contango, where immediate prices are cheaper than later, compared to $ 1.97 at the end of August. The change in the structure of the market indicates a growing concern about glut and may also, along with falling tanker rates, incentivize floating storage.
Still, there are some bright spots for the oil market. Since the beginning of the month, road traffic has grown in Europe and Asia. In China, the nation’s next five-year plan starting in 2021 will require increases in its gigantic state reserves of crude, strategic metals and agricultural products, officials with knowledge of the discussions said, a potentially bullish engine for crude in the long term. Meanwhile, some see the recent drop in oil prices accentuate the need to tighten supplies.
“Fundamentals are not bad enough to send prices significantly below these levels, even in the relatively short term,” said Bart Melek, TD Securities head of global commodity strategy in a note. With “a pragmatic OPEC + supply philosophy and the expected moderation of shale production, after the recent price drop, a more moderate production trajectory should resume the rebalancing of the market.”
Other drivers of the oil market
- Turkey is in talks over oil and gas exploration in Libya, as the administration of President Recep Tayyip Erdogan seeks business opportunities in the conflict-ravaged North African country.
- GP Global Group, a commodities company based in the United Arab Emirates, is seeking to sell oil storage terminals, fuel barges and other assets to pay off creditors after unsuccessfully trying to find a buyer for its business units, according to the people involved.
- BP Plc, the oil giant that announced a seismic strategy change last month, made its first foray into offshore wind with a $ 1.1 billion purchase of US assets from Norway’s Equinor ASA.
–With assistance from James Thornhill, Ann Koh, Sheela Tobben, and Alex Longley.
© 2020 Bloomberg LP
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