Oil Gains as Crude and Fuel Demand Withstands Latest Viral Wave

Valve control wheels on a crude oil pipe in Russia. (Photographer: Andrey Rudakov/Bloomberg)

Oil Gains as Crude and Fuel Demand Withstands Latest Viral Wave

Oil rose for a third session after a U.S. government report showed that crude and gasoline inventories fell despite fears that the delta variant’s spread would sap demand.  

Futures in New York advanced 1.2% on Wednesday to the highest in more than a week, buoyed by bullish stockpile data. Domestic crude supplies slid to the lowest since January 2020, according to data from the Energy Information Administration. Gasoline inventories dropped more than expected. 

Crude inventories declining at a time when net petroleum imports are rising, “is a bullish sign, indicating that the delta variant isn’t impacting oil demand, at least not for crude and gasoline,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. 

Oil Gains as Crude and Fuel Demand Withstands Latest Viral Wave

Oil has had a volatile August. The stellar year-to-date rally cooled in the first half of the month as concerns grew that the virus’s delta variant would hit consumption, while the Federal Reserve flagged plans to taper stimulus measures. Since then, prices have recovered, with banks from Goldman Sachs Group Inc. to UBS Group AG underlining bullish calls on the market. 

The EIA also reported that stockpiles at the Cushing, Oklahoma, storage hub, rose for the first time since early June, reversing 10 consecutive draws. Gasoline inventories declined by 2.24 million barrels last week. Fuel consumption rose to the highest in a month, defying expectations that a resurgent virus would keep more American at home and chill demand. 

Prices:
  • West Texas Intermediate crude for October delivery rose 82 cents to settle at $68.36 a barrel in New York, the highest since Aug. 13
  • Brent for October settlement climbed $1.20 to end the session at $72.25 a barrel, the highest in three weeks

Despite the positive outlook for oil demand, the crude market will very likely continue to face headwinds from the Delta variant as it will take time for the full Pfizer Vaccine approval to increase vaccination rates and as technical barriers from chart trading, said Bart Melek, head of global commodity strategy at TD Securities.

Related coverage:
  • Petroleos Mexicanos plans to resume full crude production by Monday after an offshore platform accident that cut the company’s output by a quarter. About 71,000 barrels a day has already restarted.
  • Crude inventories in Europe’s key oil-trading hub have fallen to the lowest since March 2020, partly due to constrained supply from Russia and the North Sea.
  • Weather experts are monitoring a disturbance in the southwestern Caribbean that has an 80% chance of becoming a tropical storm and may be on track to threaten oil and natural gas production in the Gulf of Mexico next week.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.