- The OPEC+ alliance is slowly tapering its production cuts.
- US crude stockpiles fell by 0.3 percent to 494.4 million barrels in the week through September 18.
- Libya is unleashing fresh supply as its civil war abates.
Oil dropped toward $39 a barrel, even after a decline in American crude and fuel stockpiles following warnings over global energy demand and the state of the US economy.
Futures in New York fell 1 percent after rising for a second day on Wednesday. Federal Reserve officials stressed that more fiscal stimulus is critical to sustain the US economic recovery, while the head of commodities trader Mercuria Energy Group said that global oil markets won’t be able to absorb OPEC+ production increases as demand remains weaker than expected.
That was after the market found support on Wednesday from Energy Information Administration data showing US distillates inventories fell the most since March, while crude inventories dropped for a second week.
After trading above $43 a barrel in late August, oil has lurched lower this month amid signs a resurgence in the coronavirus could lead to more lockdown measures. The OPEC+ alliance, meanwhile, is slowly tapering its production cuts and Libya is unleashing fresh supply as its civil war abates.
“The warning from Fed officials certainly weighed on U.S. equities and took oil lower with it,” said Warren Patterson, head of commodities strategy at ING Bank NV.
Economic uncertainty and the recent pickup in Covid-19 cases will keep oil from moving too much higher in the next two weeks and it’s likely to remain in a fairly narrow range, he said.
Brent’s three-month times spread was $1.28 a barrel in contango, where prompt contracts are cheaper than later-dated ones — compared with $1.37 at the beginning of the week. The market structure indicates that while there’s still concern about over-supply, it’s eased slightly.
Oil stockpiles have been building in September and won’t draw down enough in the remainder of the year to be in balance if OPEC+ follows through with its plan to taper production cuts early next year, Mercuria Chief Executive Marco Dunand said in an interview. Democrats and Republicans, meanwhile, have been at loggerheads over another virus relief package, with no formal negotiations since early August, even as Fed officials call for more fiscal support.
US crude stockpiles fell by 0.3% to 494.4 million barrels in the week through September 18 and distillates inventories dropped 1.9% to 175.9 million barrels, the EIA data showed.