Oil Prices Falter on Surprise Build and Fed Warning
(Bloomberg) -- Oil dropped after an unexpected increase in U.S. stockpiles and a Federal Reserve warning that a vaccine may not be enough to get the economy back on track.
Futures in New York fell 0.8% after Federal Reserve Chair Jerome Powell’s remarks, erasing gains of as much as 1.8% in a volatile session. American’s crude inventories increased by 4.28 million barrels last week, the government said Thursday, while most analysts surveyed by Bloomberg expected a decline. Slowing refining activity also didn’t bode well for oil demand.
“We won’t be getting stimulus until at least January, so that’s hit all the markets,” said John Kilduff, a partner at Again Capital LLC. “Oil needs the economy to be revived and supported to get people spending and traveling at least to a degree.”
The International Energy Agency cut its forecast for global oil demand earlier, saying the coronavirus vaccine breakthrough won’t quickly revive markets. The constantly evolving state of demand recovery taking place at varying speeds around the world adds to the challenges facing OPEC+ when it meets at the end of the month to decide on its output strategy.
While renewed lockdowns in Europe have coincided with weakening road travel, particularly in France and the U.K., it’s a mixed demand picture globally. India -- whose consumption dwarfs both countries -- posted its first annual increase since February and a return in Chinese buying interest is helping spur an oil buying frenzy.
Earlier in the trading session, crude rose after OPEC+ signaled it might not phase out its output curbs so fast next year.
“OPEC seems to be hinting that not only will they ease back the cuts, but they may even increase them,” said Gary Cunningham, director of account management and research at Tradition Energy. “Vaccine or not, OPEC’s not really counting on oil demand to recover here in the next six months.”
- West Texas Intermediate for December delivery fell 33 cents to settle at $41.12 a barrel
- Brent for January settlement lost 27 cents to $43.53 a barrel
Despite the surprise build in U.S. crude stockpiles, the EIA report also showed declines in both gasoline and distillate inventories. Distillate stockpiles dropped for eight straight weeks, pushing supplies down from a decade seasonal high.
Though the news of a vaccine breakthrough has pushed oil higher in recent days, not everyone has been buying. ETF investors have pulled more than $300 million from the oil market’s largest funds so far this week. ProShares’ $970m vehicle, known as UCO, saw its largest withdrawal on record earlier this week.
Less than three weeks before members meet to take a final decision, the OPEC+ alliance is increasingly focused on maintaining the current cutbacks into early 2021, according to several delegates, asking not to be identified as the talks are private. The presidents of both Russia and OPEC have even mentioned the option of cutting production deeper.
With OPEC and its allies currently keeping about 7.7 million barrels a day off the market, the uncertainty around when a vaccine might be available is complicating its decision on output levels. The group also faces rising supply from Libya and a potential boost in production from Iran next year.
Other oil-market news:
- Brazil is set to halve crude exports in December as looser lockdown measures ahead of the Southern Hemisphere’s summer kick-start domestic fuel consumption.
- Libya’s rival factions reached a preliminary agreement on a road map to establish a unified government and hold elections within 18 months, a deal that if finalized would mark a milestone in ending almost a decade of conflict in the OPEC member.
--With assistance from Alex Longley.
© 2020 Bloomberg L.P.
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