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Oil Falls From Four-Month High on Signs of Swelling Stockpiles


By Sharon Cho and Grant Smith

(Bloomberg) Oil fell from a four-month high in New York as signs of a surprise increase in U.S. crude stockpiles added to fears that the world’s biggest economy is struggling to control the pandemic.

The American Petroleum Institute reported crude inventories rose by 7.54 million barrels last week, according to people familiar with the figures, which would be the biggest increase since May if confirmed by government data on Wednesday. Meanwhile, President Donald Trump warned that the coronavirus outbreak in the U.S. will probably worsen before improving.

All eyes are on official government data after API reports increase

Oil surged Tuesday after European Union leaders agreed on a giant stimulus package to pull their economies out of the worst recession in memory, while signs that the first virus vaccine may be approved this year added to positive sentiment. Crude remains in a fairly narrow range near $40 a barrel as investors weigh surging coronavirus cases and the return of supply by OPEC+ after historic cuts.

“Everything seemed to rise in the commodity world yesterday as part of the reflation trade,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “But today oil fundamentals are taking control again, and a likely crude inventory build in the U.S. doesn’t fit in the story of an undersupplied market.”

Prices
  • West Texas Intermediate for September delivery fell 1.1% to $41.46 a barrel on the New York Mercantile Exchange as of 10:59 a.m. in London after rising 2.4% on Tuesday
    • September futures settled at the highest since March 6
    • The August contract expired Tuesday after surging 2.8% to close at $41.96
  • Brent for September settlement lost 0.8% to $43.95 on the ICE Futures Europe exchange after gaining 2.4% in the previous session
    • Brent’s prompt spread was steady at 24 cents a barrel in contango, compared with 12 cents at the end of June

U.S. crude stockpiles at the key storage hub of Cushing increased by 716,000 barrels last week, while gasoline inventories fell for a third week, according to the API. Analysts expect the Energy Information Administration to report a 2.2 million-barrel decline in nationwide crude stockpiles, according to the median estimate in a Bloomberg survey.

OPEC+ is due to start resuming some supplies next month, tapering the record production cutbacks implemented to offset demand losses inflicted by the coronavirus. Nonetheless, there are signs the alliance will be careful.

Russian shipments of its flagship Urals grade look like they might dip, according to loading programs seen by Bloomberg for the nation’s three main western oil ports. Meanwhile, Saudi Arabia is set to burn potentially record amounts of crude to run its power plants and keep its citizens comfortably air-conditioned over the peak summer months of July and August.

Other oil-market news:
  • Chinese fuel producers are ramping up gasoline exports as stockpiles stay swollen amid softer demand due to flooding and a resurgence of virus infections.
  • With air travel not expected to return to pre-virus levels until 2023 at the earliest, refiners are caught in a balancing act as they juggle the uneven fuel recovery and what to do about excess jet fuel output.
  • For the first time since the West’s five energy supermajors were created in the early 2000s, all of them are set to post a quarterly loss.


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