Oil Drops With Swelling U.S. Supplies Adding to Stimulus Concern

(Bloomberg) — Oil clung to losses after U.S. government data showed the first crude stockpile gain in four weeks, adding to concerns over a demand recovery with stimulus talks in limbo.


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Futures in New York fell as much as 3.4% on Wednesday. An Energy Information Administration report showed domestic crude inventories increased 501,000 barrels last week, while supplies at the nation’s biggest storage hub at Cushing, Oklahoma, climbed to the highest level since May.

At the same time, U.S. President Donald Trump’s decision to suspend fiscal relief talks until after the election is casting further doubt on energy demand bouncing back amid the pandemic. Reopening plans around the world are being thrown into question as global cases top 35 million.

This ended a trend of “fairly large declines,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “There continues to be uncertainty associated with domestic demand and the need for fiscal stimulus to continue to boost the economy and correspondingly boost demand for crude oil.”

chart: U.S. crude inventories rise for the first time in four weeks

© Bloomberg
U.S. crude inventories rise for the first time in four weeks

Oil’s retreat follows two sessions of gains, lifted by a workers’ strike in Norway and Hurricane Delta spurring Gulf of Mexico operators to shut output. Still, without a U.S. virus relief package, the demand outlook has only become dimmer. Governments around the world are trying to control the spread, with Brussels and Bucharest becoming the latest European capitals to impose restrictions on nightlife.

Trump in a series of Tuesday-night tweets called on Democrats to pass standalone bills. While House Speaker Nancy Pelosi signaled openness to a standalone airline relief bill in a telephone conversation with Treasury Secretary Steven Mnuchin on Wednesday, it is a far cry from the Democrats’ $2.2 trillion proposal.

“The market continues to be quite concerned about demand,” said Bart Melek, head of global commodity strategy at TD Securities. The absence of a fiscal relief plan “can have a significant impact on the American economy, thus oil demand.”

West Texas Intermediate for November dropped $1.31 to $39.36 a barrel as of 10:57 a.m. in New YorkBrent for December settlement slid $1.19 to $41.46 a barrel

Still, the EIA report showed gasoline inventories declined to the lowest level since November 2019. Gasoline supplies are now below the five-year average for the first time since March. Distillate stockpiles also fell last week, but remain at the highest seasonally in decades.

Meanwhile, with global benchmark crude futures stuck near $40 a barrel in recent months, Saudi Arabia faces a conundrum as the Organization of Petroleum Exporting Countries and its allies decide whether to bring back more supply in line with their agreement. Vitol Group, the world’s biggest independent oil trader, expects the group won’t relax production cuts in January because demand is recovering more slowly than forecast from the coronavirus crisis.

Other oil-market news:
The pandemic economy has radically reshaped demand as different parts of the energy system recover at different speeds. Fear of the virus has persuaded millions of drivers to forgo mass transit and get in their cars. Meanwhile, international travel is a vestige of a year ago and thousands of airliners lie mothballed.China is investing tens of billions of dollars in new mega-refineries even as its fuel demand is expected to peak within five years, raising the risk it will flood the region with cheap exports.The Baku-Tbilisi-Ceyhan oil pipeline remains operational after an attempted rocket attack from Armenian forces near Yevlakh, Ibrahim Ahmadov, a spokesman for Azerbaijani oil company Socar, said in a Facebook post. Armenia said it didn’t fire anything toward Azerbaijan.

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