Oil Rises With Shrinking U.S. Stockpiles Signaling Demand Pickup

(Bloomberg) -- Oil closed above a key technical level buoyed by U.S. energy data that suggest a much-awaited recovery in demand is underway as the summer driving season nears an end.

Futures in New York rose 2.5% to the highest level in five months, settling above its 200-day moving average for the first time since January. Domestic crude supplies declined over 4 million barrels last week and refineries ratcheted up rates above 80% for the first time since March when the coronavirus pandemic led to widespread lockdowns, according to an Energy Information Administration report. Gasoline and distillate inventories also decreased.

“There were pretty high expectations overnight built into the oil market in regard to these draws, and this report pretty much confirmed those,” said Rob Thummel, a portfolio manager at Tortoise. “We had some beef up in demand for gasoline and across the board, refining utilization was up.”

Still, investors are keeping an eye on supply levels at the Cushing, Oklahoma, storage hub, which have increased each week since early July.

U.S. benchmark crude futures are finding support from shrinking stockpiles and expectations for American shale producers to show restraint even as prices creep higher. In fact, U.S. shale oil supply may be 650,000 barrels a day lower than the current estimate of 5.83 million barrels a day by year-end because of slower rig action, according to JBC Energy.

“Crude oil demand should move on an upward trajectory into 2020,” Bart Melek, head of global commodity strategy at TD Securities, said in a note, as a potential trillion dollars worth of stimulus and the prospects of a vaccine for Covid-19 aid demand recovery. “This, along with OPEC+ supply discipline and U.S. shale oil industry weakness suggests that the existing inventory overhang should erode materially over the next four months and beyond.”

The EIA report showed gasoline stockpiles fell by 722,000 barrels last week, while distillate supplies declined by 2.32 million barrels. Stockpiles at Cushing are hovering at just over 53 million barrels, the highest since May.

“The refiners are stepping it up again, almost surprisingly, because the gasoline demand hasn’t been that great,” said John Kilduff, a partner at Again Capital LLC. Demand is picking up now for gasoline but remains “lackluster,” he said.

There are still lingering concerns over a meaningful consumption recovery. India’s oil-product demand was down 12% compared to a year earlier in July, as the nation continues to grapple with the virus, while Japan’s gasoline demand is showing renewed signs of weakening.

©2020 Bloomberg L.P.