Oil Prices Settle Higher on Russia Export Cuts



Oil Prices Settle Higher on Russia Export Cuts
Oil prices rose after Russia slashed exports of its flagship crude Urals to the lowest in at least 10 years.

(Bloomberg) -- Oil prices rose after Russia slashed exports of its flagship crude Urals to the lowest in at least 10 years, signaling the determination of Moscow to work with its partners at OPEC+ to eliminate an oil glut.

Futures in New York gained 1.9% Thursday. Still, with the virus driving recovery prospects, a dose of pessimism has returned to the oil market. In Texas, the epicenter of the U.S. oil industry, the governor warned that a “massive outbreak” is sweeping the state. New infections also reached daily records in Florida and California, with the fear of new lockdowns sending U.S. gasoline futures tumbling by the most in two months Wednesday.

The uncertain demand picture has highlighted the test facing refiners in recent days. Nine of the top 20 gasoline-consuming states are showing an upward trend in new cases, Standard Chartered said in a note. While refining profits are recovering from catastrophic levels in Europe, according to Total SA, the virus’s second wind in the U.S. casts doubts on the future of American consumption at a time when crude inventories are already at record-high levels.

“Refiners are in the unenviable position of increasing run rates and running the risk of posting a gasoline storage build in summer,” said Robert Yawger, director of the futures division at Mizuho Securities USA, in a note to clients Thursday morning. The other option is “cutting run rates and extending the all-time record crude oil storage level,” he said.

The stubborn U.S. supply glut has capped oil’s rally from from its historic plunge below zero in April, with West Texas Intermediate crude futures struggling to hold above $40 a barrel in recent weeks. While that’s high enough to induce shale drillers to restart their idled output as soon as this month, increasing production could exacerbate the surplus and undercut prices just as they’re improving. The physical market has weakened in recent weeks, with differentials for a key U.S. grade for export trading at just 70 cents a barrel versus $1.20 at the beginning of the month.

Prices:

  • West Texas Intermediate for August gained 71 cents to $38.72 a barrel in New York. It’s heading for the second weekly loss since late April.
  • Brent for the same month gained 74 cents to $41.05 a barrel.
  • Gasoline futures fell 0.2% at $1.1942 a gallon.

Rising U.S. output also would complicate OPEC and its allies’ goal of trimming global crude inventories by almost 10 million barrels a day. Brent crude’s prompt timespread has dropped into contango again, a structure that suggests oversupply.

“If the economy doesn’t pick up, that will become a drag on crude oil demand just when OPEC+ has to make a decision about what to do next,” said Ole Hansen, head of commodities strategy at Saxo Bank. There’s a risk of oil dropping further “if cracks should appear in the OPEC+ resolve to keep barrels off the market.”

Other oil-market news

  • One of the largest bullish oil exchange-traded funds will sell its holdings of September WTI crude futures, which comprise about 10% of the market for that particular contract.
  • Billionaire wildcatter Harold Hamm bought more shares in Continental Resources Inc., the shale drilling company he controls, as oil prices recover from their historic plunge.
  • A surge in Chinese gasoline exports is threatening to derail a nascent recovery in profits for Asian refiners making the motor fuel, which have endured months of virus-driven demand destruction.
  • The oil market is starting to sour for owners of supertankers that deliver about a fifth of the world’s crude.

--With assistance from Alex Longley, Low De Wei, James Thornhill and Sheela Tobben.

To contact the reporter on this story:
Hailey Waller in New York at hwaller@bloomberg.net

To contact the editors responsible for this story:
Mike Jeffers at mjeffers2@bloomberg.net
Christine Buurma

© 2020 Bloomberg L.P.



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