Oil Dips After Industry Reports Rising U.S. Crude Stockpiles

(Bloomberg) -- Oil pared gains after an industry report showed growing U.S. crude supplies, adding to uncertainty over the OPEC+ alliance’s output plans for next year.

Futures dipped after settling 0.2% higher in New York. The industry-funded American Petroleum Institute was said to report domestic crude stocks rose 4.17 million barrels last week, while gasoline supplies also increased. Meanwhile, demand is likely to suffer from measures to contain the Covid-19 pandemic this winter.

“All in all, we’ll be somewhat tilted toward the bearish, mainly reflecting that the second wave of Covid is hitting the American economy and energy demand is getting impacted,” said Bart Melek, head of global commodity strategy at TD Securities. “We’re not going to get a huge downshift in prices, because the markets are already factoring in some weaker demand conditions going into the latter part of 2020 and early 2021.”

The OPEC+ alliance is wrestling with a bifurcated demand outlook. In Asia, where consumption has recovered substantially from Covid-19, refiners have been snapping up barrels from the Middle East, U.S. and Russia. The structure of Oman futures on the Dubai Mercantile Exchange has surged into a bullish backwardation -- indicating tight supplies -- in recent days. Yet, in Europe and the U.S., a surge in coronavirus cases has led to tougher restrictions limiting movement and consumption.

“There’s still a question of how much demand growth there’ll be,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “This is a meaningful near-term problem given still abundant supply and no real evidence of an uptick in global demand growth yet.”

Prices weakened earlier after an OPEC+ committee meeting ended without a concrete signal that producers will reverse plans to increase output come January. The producer group had been discussing postponing an output increase by three to six months. Yet, Saudi Energy Minister Prince Abdulaziz bin Salman said the market is too fluid to make a decision on the cuts now.

OPEC+ producers are trying to avoid oversupplying the market at a time when ministers have voiced both optimistic and cautious notes on the strength of global demand. Prince Abdulaziz said vaccine developments provide a light at the end of the tunnel, but the market has some way to go before getting there.

The producer group has been dropping hints for weeks that its plan to add almost 2 million barrels a day to oil markets next year may not be such a good idea as demand remains depressed.

©2020 Bloomberg L.P.