Crude oil futures added to their losses in the middle of the trading week after the US government reported a surprise increase in domestic stockpiles. Oil prices have been slumping on a resurgence in coronavirus cases, leading to expectations that global demand could diminish, which would occur as fresh supply comes to the market. Could US crude prices slide to $65?
September West Texas Intermediate (WTI) crude oil futures plummeted $2.06, or 2.92%, to $68.50 per barrel at 14:41 GMT on Wednesday on the New York Mercantile Exchange. WTI contracts are down nearly 5% over the last week, but they are still up 43% year-to-date.
Brent, the international benchmark for oil prices, is flirting with $70. October Brent crude futures fell $1.66, or 2.29%, to $70.75 a barrel on London’s ICE Futures exchange. Brent is also down about 4% on the week, paring its year-to-date spike to below 37%.
According to the US Energy Information Administration (EIA), domestic crude inventories increased 3.626 million barrels in the week ending July 30, defying the median estimate of a 3.102 million-barrel drawdown. Last week, US supplies had a withdraw of 4.089 million barrels.
Crude stockpiles at the Cushing, Oklahoma storage facility declined 5430,000 barrels. US gasoline supplies decreased 5.292 million barrels, while heating oil stocks dropped 681,000 barrels.
In other industry news, the number of crude oil rigs in the US slipped to 385 last week, according to the Baker Hughes rig count.
Crude prices have been cratering in recent sessions on fears that the growing number of new COVID-19 variants could weigh on demand, especially as new supply comes to the global marketplace. Most new cases in the US are being driven by the Delta variant, South Korea recently discovered the Delta Plus variant, and now scientists say that Lambda could be resistant to the coronavirus vaccines.
Also, there is some consternation that Chinese demand for oil could subside in the months to come, especially now that the world’s second-largest economy has reported fresh outbreaks. However, since most of the population has been vaccinated, patients are reporting little to no symptoms.
Barbara Lambrecht, analyst at Commerzbank, wrote in a research note:
“The risks to demand in China remain the number one topic.
There is particular nervousness on the oil market because oil demand suffers considerably from mobility restrictions imposed in a bid to combat coronavirus. Let us not forget that global oil demand slumped by 8.7% year-on-year last year, whereas coal demand declined by 4% and gas demand fell by ‘only’ just shy of 2%.”
That said, these trends could be something to monitor heading into the fall, leaving many industry observers worried that exploding infections could send oil even lower. Will the oil and gas sector respond to the bearish sentiment, or will companies and countries continue ramping up output?
In other energy commodities, September natural gas futures soared $0.118, or 2.93%, to $4.145 per million British thermal units (btu). September gasoline futures shed $0.0163, or 0.72%, to $2.2545 a gallon. September heating oil futures tumbled $0.0315, or 1.48%, to $2.0949 per gallon.