(Bloomberg) — Oil declined after a U.S. government report showed an expansion in crude stockpiles during a time when fiscal relief from Washington remains up in the air.
Futures in New York dropped 1.8% on Wednesday. U.S. crude stockpiles increased 501,000 barrels last week, while supplies at the nation’s biggest storage hub at Cushing, Oklahoma, climbed to the highest level since May, according to Energy Information Administration data.
Yet, oil pared some of its losses in afternoon trading as Hurricane Delta headed toward the energy-producing Gulf of Mexico region, where operators have shut 80% of oil output. A rally in U.S. equities also lent support, with President Donald Trump backing a piecemeal approach to aid after pausing stimulus talks until after the election.
“Traders are still digesting what the future is for demand,” said Josh Graves, senior market strategist at RJ O’Brien & Associates LLC. “There’s still a lot of questions about what the virus aid is going to be, if any.”
Oil’s retreat follows two sessions of gains, lifted by a workers’ strike in Norway and storm-related shut-ins in the Gulf of Mexico. Still, demand for oil without a full-fledged fiscal relief plan remains in a precarious state, with governments around the world trying to control the spread of coronavirus as global cases approach 36 million.
Trump in a series of Tuesday-night tweets called on Democrats to pass standalone bills. While House Speaker Nancy Pelosi signaled openness to a standalone airline relief bill in a telephone conversation with Treasury Secretary Steven Mnuchin on Wednesday, she rejected pressure from Trump to green-light a bill authorizing $1,200 individual stimulus checks, saying that was insufficient to address the Covid-19 challenge.
“Signs of a renewed downtrend in demand continues to worry the market,” especially with President Trump no longer pursuing a new fiscal stimulus plan and a second wave of Covid, Bart Melek, head of global commodity strategy at TD Securities, said in a note. “This implies that inventories will stay elevated for a while yet.”
- West Texas Intermediate for November fell 72 cents to settle at $39.95 a barrel
- Brent for December settlement lost 66 cents to end the session at $41.99 a barrel
Still, the EIA report showed gasoline inventories declined to the lowest level since November 2019. Gasoline supplies are now below the five-year average for the first time since March. Distillate stockpiles also fell last week, but remain at the highest seasonally in decades.
Hurricane Delta has not only spurred operators to shut in production, but is also threatening to further depress crude demand from refiners that may face disruptions. Phillips 66 has paused the restart of its Lake Charles refinery in southwest Louisiana as Delta heads for the state.
Other oil-market news:
- The pandemic economy has radically reshaped demand as different parts of the energy system recover at different speeds. Fear of the virus has persuaded millions of drivers to forgo mass transit and get in their cars. Meanwhile, international travel is a vestige of a year ago and thousands of airliners lie mothballed.
- China is investing tens of billions of dollars in new mega-refineries even as its fuel demand is expected to peak within five years, raising the risk it will flood the region with cheap exports.
- The Baku-Tbilisi-Ceyhan oil pipeline remains operational after an attempted rocket attack from Armenian forces near Yevlakh, Ibrahim Ahmadov, a spokesman for Azerbaijani oil company Socar, said in a Facebook post. Armenia said it didn’t fire anything toward Azerbaijan.
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