Crude oil futures are struggling for direction on Wednesday after the US government reported a larger-than-expected build in domestic supplies. US crude has been plummeting over the last month, and it is unclear if prices could rebound heading into the fall and winter of 2021. What is next for oil prices?
September West Texas Intermediate (WTI) crude futures were unchanged at $66.34 per barrel at 14:42 GMT on Wednesday on the New York Mercantile Exchange. WTI contracts are on track for a weekly loss of about 4%, adding to their August declines of 5.5%. Year-to-date, US crude is still up 37%.
Brent, the international benchmark for oil prices, is also slumping midweek. October Brent crude futures erased $0.21, or 0.3%, to $68.82 a barrel on London’s ICE Futures exchange. Brent is down 4% over the last week, but it is still up 33% on the year.
According to the US Energy Information Administration (EIA), domestic crude inventories declined by 3.234 million barrels in the week ending August 13. This is greater than the market forecast of 1.055 million barrels and is up from last week’s 447,000-barrel withdrawal.
Oil supplies at the Cushing, Oklahoma storage facility fell by 98,000 barrels. Gasoline stockpiles rose 696,000 barrels, while distillate inventories decreased 2.697 million barrels.
Crude oil prices have been struggling since peaking at around $76. WTI and Brent contracts have taken hits primarily on demand concerns amid the resurgence of coronavirus infections, fueled by the Delta and Lambda variants. New COVID-19 cases have returned to their highest levels since the end of December, with the seven-day average at close to 140,000. This time, however, deaths have remained in the low triple digits.
Market analysts further note that investors were too optimistic about the rebound in crude prices. Fawad Razaqzada, market analyst with ThinkMarkets, wrote in a research note:
“Investors are worried that oil prices went too high during its rallying phase when optimism was sky-high about demand returning to normal. But now, investors are forced to reassess those rosy views and are realizing that demand is actually a little softer.
If we see an unexpected build, then expect to see oil prices take a tumble. Beyond the short term impact of inventories data, the weakening signs of demand for oil, and the ongoing return of OPEC+ oil means the market is no longer going to be very tight.”
On the geopolitical front, President Joe Biden’s request for the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, to ramp up output has ostensibly been denied. This is positive news because higher production levels would add more to global crude markets that could add to inventories.
In other energy commodities, September natural gas futures tumbled $0.01, or 0.26%, to $3.827 per million British thermal units (btu). September gasoline futures edged up $0.0038, or 0.18%, to $2.1694 per gallon. September heating oil futures tacked on $0.0089, or 0.44%, to $2.045 a gallon.