Oil prices hold gains despite rapidly growing U.S. inventories

By Andres Guerra Luz on 12/9/2020

(Bloomberg) –Oil erased losses even after the biggest weekly gain in U.S. crude stockpiles since April raised concerns about the near-term trajectory of a demand recovery.

Futures were slightly higher in New York after falling as much as 1.4% earlier. An Energy Information Administration report showed crude stockpiles rose by more than 15 million barrels last week, reminiscent of the type of storage builds seen during the depths of the pandemic. Increases in gasoline and distillate inventories added to bearish sentiment, as gauges of demand for both fuels declined in a bad sign for the near-term consumption outlook.

Prices earlier rallied after militants attacked two wells in the Khabbaz oil field in Iraq, though the nation’s Oil Ministry said the wells were only producing around 2,000 barrels a day before the attack.

“Crude oil’s trying to look past the current set of poor data, especially in terms of demand,” said John Kilduff, a partner at Again Capital LLC. “We’re in a mode here where dips are being seen as buying opportunities.”

Oil has chopped around nine-month highs this week as the market holds out for an upcoming vaccine rollout to spur another leg of demand recovery. Before then, worries about the pace of the demand recovery continue to weigh on sentiment as governments reimpose restrictions to fight off the virus’s spread.

“There’s not really much of anything to be positive about” in the EIA report, said Matt Sallee, portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “The mobility data is going to tick down with the infection rate so high. As the the vaccine gets rolled out, that part will improve, but it’s going to be an issue for the time being.”

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  • West Texas Intermediate for January delivery rose 32 cents to $45.92 a barrel at 12:03 p.m. in New York
  • Brent for February settlement gained 36 cents to $49.20 a barrel

The EIA report also showed crude exports fell to the lowest since October 2018, helping bring the U.S. back to being a net petroleum importer for the first time since September. Meanwhile, distillate stockpiles, which had been declining at a fairly steady clip, rose the most since May as diesel demand fell.

Still, moves along the forward curve continue to signal expectations for an improving supply and demand picture. Brent’s nearest contract moved back to trading at a premium to the following month, while the spread between the closest December contract and December 2022 also trades in a bullish backwardation structure.

In physical oil markets, demand from Asian buyers appears robust for now. Indian Oil Corp. issued another tender for prompt cargoes of Middle Eastern crude, while China’s teapots have been buying crude from as far afield as the North Sea for arrival early next year. Outside of Asia, Brazil remains a lone bright for demand, with fuel demand expected to surpass 2019 levels.

Other oil-market news:

  • Egypt has bought more derivative contracts to protect itself against an increase in oil costs, as some importers seek to take advantage of this year’s price rout.
  • Trafigura Group Ltd. racked up record annual trading profits, demonstrating how the global disruption caused by the coronavirus was a boon for dealers of commodities from crude to copper.
  • The United Arab Emirates awarded oil-exploration rights to Occidental Petroleum Corp., moving quickly to expand output capacity just a week after the country clashed with its OPEC partners over production limits.

Appeared on www.worldoil.com


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