Light Crude Edges Upward but Down for the Week



Light Crude Edges Upward but Down for the Week
Oil posted its first back-to-back weekly loss since April's rout.

(Bloomberg) -- Oil posted its first back-to-back weekly loss since April’s rout with the end of the summer driving season and concern about OPEC’s production compliance weighing on prices.

Futures in New York edged up on Friday, but prices fell 6.1% this week coinciding with a retreat in U.S. equities. Traders are also examining data indicating the United Arab Emirates since July has been regularly exceeding its quota under a deal between the Organization of Petroleum Exporting Countries and its allies.

“Oil by-and-large has not had a mind of its own this week,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures, with investors’ focus shifting toward equities and the prospects for an economic rebound. There are also “lingering concerns that demand will drop off because everybody’s working from home and not many people are traveling, ” he said.

The uncertainty over how much supply OPEC+ is returning to the market adds another wrench in the recovery for oil prices still reeling from the pandemic-driven blow to consumption. While U.S. supplies had grown tighter in past months and producers were expected to restrain production amid a weak financial backdrop, stockpiles rose again last week for the first time since mid-July.

The build in U.S. inventories served as “a reminder that the driving season is over,” without a late surge in driving activity some may have hoped for, said Michael Lynch, president of Strategic Energy & Economic Research.

Prices

  • West Texas Intermediate for October delivery edged 3 cents higher to settle at $37.33 a barrel.
  • Brent for November settlement fell 23 cents to $39.83 a barrel. The contract fell 6.6% over the week.

Oil options markets have also turned progressively more bearish this week. The cost of bearish put options, which help traders profit when prices slide, was the most expensive relative to bullish calls since June. That suggests options traders remain pessimistic about the market outlook.

Meanwhile, the spread for Brent futures’ nearest December contracts this week settled at its widest contango since May, boosting the profitability of storing oil at sea. Some of the world’s biggest oil traders have chartered supertankers that could be used for floating storage or for transport, according to shipbrokers and fixtures.

The pandemic has wreaked havoc on the U.S. shale industry. Frackers are blasting less sand into shale wells for the first time in almost three years as oil explorers adjust to lower oil demand and prices due to the coronavirus outbreak.

“Until we’re reopened and prices get back to a profitable level, activity continues to grind lower,” providing some support for oil prices, said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “The unique thing about the fracking industry is how quickly they can reopen,” but the “the question is can the companies survive until that happens.”

Other oil-market drivers

  • The mental strains on ship crews stranded at sea by the pandemic are adding to the risk of oil spills and vessel crashes, according to an industry group that promotes the safe transport of oil and gas.
  • The German navy boarded a ship en route to eastern Libya from the United Arab Emirates carrying jet fuel and diverted it to Malta, officials said, as part of an effort to clamp down on violations of a United Nations arms embargo on the North African country.
  • Venezuela’s capacity to produce some much-needed gasoline and diesel of its own hinges on a single oil play. To tap it, the Nicolas Maduro regime is willing to cannibalize the country’s crumbling energy infrastructure to pay contractors with scrap metal.

--With assistance from James Thornhill, Ann Koh, Sheela Tobben and Alex Longley.

© 2020 Bloomberg L.P.



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