Oil Slides With Expected U.S. Supply Gain Amplifying Demand Woes
Workers operate the rotary table and drill pipes on an oil drilling rig. (Photographer: Andrey Rudakov/Bloomberg)

Oil Slides With Expected U.S. Supply Gain Amplifying Demand Woes

Oil declined as investors shifted their focus to domestic supply, with expectations for another build in already swelling U.S. stockpiles.

Futures in New York fell 1.3% on Tuesday. Analysts in a Bloomberg survey expect a 450,000-barrel gain in U.S. crude stockpiles. While the industry-funded American Petroleum Institute reported a 6.83-million-barrel decrease in oil supplies, it posted a rise of 1.08 million barrels in gasoline inventories.

Consultant Rystad Energy highlighted the risks to crude’s recovery from a record glut earlier this year, saying it expects oil supply to eclipse demand for the next four months.

“Demand for crude oil right now, whether it’s driving or especially on the airline front of it, is definitely a little bit weaker,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “We’re kind of in a range here right now, at least until the EIA numbers come out.”

Oil Slides With Expected U.S. Supply Gain Amplifying Demand Woes

Following a swift rebound from April lows, crude prices have struggled to find direction in recent months, with U.S. benchmark futures bouncing in a tight range around $40 a barrel as the resurgent pandemic sours prospects for a demand recovery. In the U.S., New Jersey’s transmission rate hit its highest in three months. Elsewhere, countries from the Netherlands to Malaysia are facing a rise in new cases and China’s virus cluster has spread to Beijing.

Oil-consulting firm FGE said U.S. gasoline demand will have a hard time reaching 9 million barrels a day this year and the International Air Transport Association’s chief economist expects that future demand for jet fuel will not catch up with the pre-Covid forecast for at least five years.

The API also reported a 187,000-barrel build in distillate supplies.

Prices
  • West Texas Intermediate for September delivery traded at $41.08 a barrel at 4:59 p.m. after settling at $41.04 a barrel.
  • Brent for September declined 19 cents to end the session at $43.22 a barrel

The futures curve is also showing signs of weakness. Brent’s September futures were 39 cents cheaper than for October, compared with a 23-cent discount a week earlier. The difference between the front- and second-month price is known as the prompt timespread. WTI’s prompt spread has also declined. The widening discounts, known as contango, is typical of a supply glut.

“No matter how you cut it, contango encourages storage,” Bob Yawger, director of the futures division at Mizuho Securities USA, said in a note. “Until that math is eliminated from the energy patch, prices will struggle to rally to the next level. Prices are more likely to break down.”

Other oil-market news
  • National Oilwell Varco Inc., one of the world’s biggest makers of oilfield gear, dropped the most in more than four months after warning that the worst crude crash ever will drag sales down again this quarter.
  • A sharp rebound in gasoline consumption that helped to drive oil prices higher appears to be running out of steam, a development that should be a cause for concern across the petroleum industry.
  • Iran’s Islamic Revolutionary Guard Corps held “large-scale” military drills off the Strait of Hormuz on Tuesday, according to a statement on its Sepah News website.

©2020 Bloomberg L.P.

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