Oil declined as a slide across financial markets overshadowed the positive signal from the biggest draw in U.S. crude stockpiles in six months.
Futures in New York slid 0.3 per cent as negative sentiment rippled through markets amid concerns over earnings, the resurgence of the pandemic, and a cautionary outlook on the U.S. economy from the Federal Reserve. A stronger dollar also reduced the appeal of commodities priced in the currency.
There are signs that the COVID-19 outbreak is continuing to crimp fuel consumption. China’s flight and road travel has declined ahead of the Lunar New Year, which typically sees a seasonal boost to demand, while traffic in Los Angeles slumped over the past month.
The bearish tone eclipsed an almost 10 million-barrel decline in U.S. crude stockpiles and shrinking inventories at the key storage hub of Cushing.
“The initial euphoria sparked by the inventory data has quickly evaporated,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “The tone in the oil market is more pessimistic again.”
A resurgent virus has stalled a rally in crude with many parts of the world still locked down. The U.S. Fed signaled the fight against COVID is far from over, and the economy still needs massive support.
Still, strict production curbs by OPEC and its partners could supersede the drag on demand and send Brent crude past $70 a barrel by the end of this year, according to JPMorgan Chase & Co.
The oil market’s futures curve is also strengthening into a bullish structure called backwardation, when nearer contracts are more expensive than later-dated ones. It’s being supported by Saudi Arabia and Iraq’s supply cuts, and lower Russian exports next month.
- West Texas Intermediate for March delivery fell 16 cents to $52.69 a barrel at 8:13 a.m. in New York
- Brent for the same month was little changed at $55.77, after closing 0.2 per cent lower on Wednesday
While U.S. crude stockpiles fell for the sixth time in seven weeks, gasoline inventories increased by about 2.5 million barrels, according to government data. That’s almost double the median estimated gain in a Bloomberg survey.
© 2021 Bloomberg L.P.