Overseas Demand Fears Weaken U.S. Oil Prices to Multi-Month Lows
Idled drilling rigs stand at a business park in Midland, Texas. (Photographer: Matthew Busch/Bloomberg)

Overseas Demand Fears Weaken U.S. Oil Prices to Multi-Month Lows

U.S. crude producers are selling their supply at the lowest prices in months on dimming prospects of a steady recovery in demand from Europe to India.

West Texas Intermediate crude produced in the Permian Basin traded Tuesday at the smallest premium to Nymex oil futures since June as countries extend pandemic restrictions. Germany, France and Italy widened lockdowns this week to combat a resurgence in cases, clouding their path to recovery after battling the virus for a year. India’s oil demand is also uncertain after a surge in Covid-19 cases that threatens its return from recession. The South Asian nation was the largest buyer of U.S. oil in January.

Drillers across the U.S. have increasingly been looking to the export market to unload their supplies as several Texas refineries have yet to fully recover from the deep freeze that shut down operations last month. Crude processing rates in the Gulf Coast, the heart of U.S. oil refining, are about 80% of levels seen before the winter storm.

“The weakness in crude prices isn’t likely to go away in the coming weeks, even as U.S. refinery utilization recovers to pre-storm levels,” said Fernando Valle, a Bloomberg Intelligence analyst. “There is still the resurgence of Covid-19 in Europe and Asia, and refinery maintenance in China and these are likely to keep international demand weak for U.S. crude.”

Export demand had already been limping for some weeks as East Asia, a major destination for U.S. oil, prepares for planned maintenance at its refineries next month. For nearly a month, American crude exports have kept well under 3 million barrels a day after soaring to nearly 4 million just before February’s storm.

Overseas buying isn’t expected to recover any time soon. China, the largest customer for U.S. oil, slowed its intake after purchasing heavily in recent months. Local producers are also competing with traders that have amassed large quantities in storage across the world and are looking to offload their supplies since it doesn’t pay now to store oil and sell in the future.

Grade Pricing:

  • WTI in Houston at 55 cents above Nymex oil futures, smallest premium since June
  • Southern Green Canyon at $1.45 a barrel under WTI, weakest discount in a year
  • Heavy Louisiana Sweet crude at 85 cents a barrel below oil futures, weakest premium since November

©2021 Bloomberg L.P.

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