Oil Rally Cools on Unexpected Supply Rise at U.S. Storage Hub

Biden criticized Saudi Arabia and Russia for an inadequate response to the energy crunch.

Julia Fanzeres

02 Nov 2021, 05:09 AM IST

Oil Rally Cools on Unexpected Supply Rise at U.S. Storage Hub

Oil well pump jacks operated by Chevron Corp. in California. (Photographer: David Paul Morris/Bloomberg)

(Bloomberg) -- Oil pared gains amid rising stockpiles at the biggest U.S. storage hub, signaling a crude supply drain may be slowing.

Futures in New York closed 0.6% higher on Monday. Inventories at Cushing, Oklahoma, the delivery point for benchmark U.S. crude futures, rose by about 852,000 barrels in the period Oct. 26-Oct. 29, according to traders citing data from Wood Mackenzie.

Any reversal in the trend of supply declines at Cushing, “should at least quell the panic on inventories,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

Crude has soared this year as economies recover from the pandemic and amid an energy squeeze marked by shortages of gas and coal. Bank of America even said it expects Brent crude to hit to hit $120 a barrel by the end of June. Meanwhile, the Organization of Petroleum Exporting Countries and its allies will meet virtually on Thursday to discuss output policy. The group have loosened supply curbs only gradually, and top exporter Saudi Arabia has maintained a cautious stance.

U.S. President Joe Biden criticized Saudi Arabia and Russia for an inadequate response to the energy crunch while speaking after a Group of 20 summit on Sunday. However, OPEC+ has remained steadfast in resisting the pressure, with Kuwait becoming the latest country to say the group should stick with its plan to increase output only gradually. Analysts believe the cartel will stay the course, in fear of making the same mistakes of overproduction they have in the past.

The winter is coming and the group doesn’t know if lockdowns in the future will derail demand, Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg Television interview. “They don’t want to preempt anything.”

Prices:
West Texas Intermediate for December delivery rose 48 cents to settle at $84.05 a barrel in New York Brent for January settlement gained 99 cents to settle at $84.71 a barrel

Inventories at Cushing have been draining as oil prices for immediate delivery are well above those for delivery in the future, making storing oil unprofitable. Stockpiles are currently sitting at the lowest since late 2018.

Over the weekend, China said it would release state reserves of diesel and gasoline to ease shortages. The move is a part of an annual rotation of holdings, but the government has given neither volumes nor a schedule.

Related coverage:
China may be forced to start buying crude at elevated prices to replenish its thinning crude stockpiles, adding more pressure to a nation that’s facing energy shortages and seeking to avert a diesel crisis. OPEC delivered barely half the oil-production increase it had planned for October as African members continued to struggle with output losses. U.S. Energy Secretary Jennifer Granholm said gasoline prices could decline by early December and singled out OPEC as a reason for why Americans have been paying more at the pump.

Related coverage:

China may be forced to start buying crude at elevated prices to replenish its thinning crude stockpiles, adding more pressure to a nation that’s facing energy shortages and seeking to avert a diesel crisis.
OPEC delivered barely half the oil-production increase it had planned for October as African members continued to struggle with output losses.
U.S. Energy Secretary Jennifer Granholm said gasoline prices could decline by early December and singled out OPEC as a reason for why Americans have been paying more at the pump.