Oil Pares Gains After API Reports Surprise Supply Increase

Rail wagons for oil, fuel and liquefied gas cargo. (Photographer: Andrey Rudakov/Bloomberg)

Oil Pares Gains After API Reports Surprise Supply Increase

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Oil pared earlier gains after the American Petroleum Institute was said to report an unexpected U.S. crude inventory gain and a build in gasoline stockpiles.

Crude supplies rose 806,000 barrels last week, according to people familiar with the API data. The crude build would be first since May if Energy Information Administration data confirms it Wednesday. Analysts surveyed by Bloomberg expected a crude stockpile decline of about 4.5 million barrels. Gasoline stockpiles increased 3.3 million barrels, the API was said to report.

Futures in New York earlier rose 1.5% on Tuesday as broader markets rebounded after a virus-fueled selloff. Oil declined the most since September on Monday, as countries around the world attempt to curb the spread of the highly transmissible delta variant of Covid-19.

Oil will be rangebound while the delta variant, “although not catastrophic for demand,” does cap consumption, especially as it pertains to international travel, said Jay Hatfield, chief executive officer of Infrastructure Capital Management.

Oil Pares Gains After API Reports Surprise Supply Increase

Oil’s upward trajectory has reversed in July as the spreading delta variant threatens the global economic recovery. The U.S. has warned citizens to not travel to the U.K. and Indonesia amid an increase in infections, and Singapore will tighten restrictions on dining-in and social gatherings. Goldman Sachs Group Inc. said the variant may curb global oil demand by 1 million barrels a day for a couple of months, though that’s offset by a slow production ramp-up from OPEC+.

“The market has yet to adjust to the idea that the end of the pandemic might not be a clear binary event and it might not be soon,” said Paul Horsnell, head of commodities research at Standard Chartered. “We believe we may be moving into a situation where economic decisions and the mobility possibilities open to consumers are still affected by the pandemic and remain so for an extended period.”

The longer-term outlook for oil may signal oversupply, especially with the addition of OPEC+ production increases. The tightest period for supply may be behind the market at this stage, and fundamentals for next year are weak, according to a report by Horsnell. Also, the slowing of monetary and economic stimulus next year will likely hurt growth, Hatfield said.

“We see next year’s economic situation as being dominated by ‘stagflation,’ so that’s not as positive for demand,” he said.

Shale producers have begun to take advantage of this year’s oil rebound by securing prices for 2022. EOG Resources Inc., the second largest independent U.S. shale explorer, locked in prices near $65, according to a filing Monday.

Prices
  • West Texas Intermediate for August delivery, which expired Tuesday, rose $1 to settle at $67.42 a barrel in New York
    • The September contract traded at $66.42 a barrel at 4:56 p.m. in after-market trading after settling at $67.20 a barrel
  • Brent for September settlement added 73 cents to end the session at $69.35 a barrel

Crude’s plunge Monday also put the global benchmark under technical pressure. Brent fell below its 100-day moving average for the first time since November, and below its 50-day moving average for the first time since May. Such moves can often spark additional selling from trend-following funds.

“There’s a likelihood for choppiness given the profound volatility that was introduced to the market yesterday with that drop,” said Tom Finlon of Brownsville GTR LLC, a trading and logistics firm based in Houston.

The API also reported inventories declined by 3.57 million barrels at the nation’s biggest storage hub at Cushing, Oklahoma, and distillate inventories fell 1.23 million barrels last week.

Other market news:
  • France’s Parliament has adopted a law that cracks down on emissions linked to transport, manufacturing and housing as the government seeks to implement new measures to fight global warming.
  • For the first time in seven years, Halliburton Co., the biggest provider of fracking services, is expanding in both U.S. and foreign markets as spending recovers in the global energy industry.
  • BHP Group is considering getting out of oil and gas in a multibillion-dollar exit that would accelerate its retreat from fossil fuels, according to people familiar with the matter.

©2021 Bloomberg L.P.

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