Oil Up with US Stockpiles Shrinking

(Bloomberg) -- Oil extended gains after closing near a five-month high in New York on Wednesday as U.S. crude stockpiles declined more than expected, offsetting expanding fuel inventories and softer demand.

Crude stockpiles slid to the lowest level since April, falling more than double the median estimate in a Bloomberg survey. However, government data also showed gasoline and distillate inventories rose by a combined 2 million barrels last week as the summer driving season nears its end, while demand for motor fuel stagnated, highlighting the uneven recovery from a virus-driven crash.

While oil is starting to rally, OPEC+ and some U.S. producers are set to test the market by returning supply after prices recovered from a plunge below zero in April. Rising coronavirus infections had anchored crude near $40 a barrel since early June, and while many major economies are struggling to control the outbreak, progress on a possible vaccine is only inching forward.

“This is going to be a slow grind higher for oil,” said Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda. “The world is still definitely in a recession and there are very real worries about the trajectory of the U.S. economy because Covid-19 is nowhere near controlled.”

U.S. crude stockpiles fell by 7.37 million barrels for a second weekly decline through July 31, the Energy Information Administration reported Wednesday. The median estimate in a Bloomberg survey had forecast a decrease of 3.35 million. However, inventories at the storage hub of Cushing, Oklahoma, rose for a fifth week to the highest level since May.

Prices

West Texas Intermediate for September delivery gained 0.5% to $42.38 a barrel on the New York Mercantile Exchange as of 7:11 a.m. London time after climbing 1.2% on Wednesday Brent for October settlement added 0.6% to $45.45 on the ICE Futures Europe exchange after rising 1.7% in the previous session to close at the highest level since March 6 Crude oil futures increased 0.8% to 282.3 yuan on the Shanghai International Energy Exchange

The 3-2-1 refining margin for combined gasoline and diesel against WTI -- a rough profit gauge for processing a barrel of crude -- held below $10 a barrel for a third consecutive day on Thursday. The measure is at its lowest seasonal level in nearly a decade as the pandemic keeps Americans off the road during the normally busy summer driving season.

Meanwhile, Saudi Aramco plans to release pricing for September’s crude shipments on Thursday, after delaying the decision earlier this week, according to people with knowledge of the situation.

Other oil-market news

Oil exports from OPEC’s Middle East producers rose in July after Saudi Arabia and key Persian Gulf allies reversed the voluntary production cuts they had made the previous month. The figures exclude Iran. Exxon Mobil Corp. warned that low energy prices may wipe as much as one-fifth of its oil and natural gas reserves off the books. Crude oil stored on ships that haven’t moved for 14-150 days dropped further last month to about 135 million barrels as of late July, according to a report from IHS Markit.

--With assistance from James Thornhill.

To contact the reporters on this story:
Low De Wei in Singapore at dlow47@bloomberg.net;
Saket Sundria in Singapore at ssundria@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Ben Sharples, Andrew Janes

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