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Futures Movers: Oil futures end at lowest in over 3 weeks as stocks decline, U.S. crude supplies rise

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Oil futures declined Wednesday, tracking a slump in global equities as weekly data from the Energy Information Administration showed an increase in U.S. crude inventories, contributing to a drop to the lowest settlement prices in more than three weeks.

“The uncertainty from a week ago regarding the Colonial pipeline has basically been put on the back burner,” said Tariq Zahir, managing member at Tyche Capital Advisors. “While gasoline is still seeing shortages in a few states, we expect that to get resolved over the next week or two.”

The bigger influences on oil in the short term include the “situation with the third-largest consumer of oil” — India, Zahir told MarketWatch. COVID will have a “serious impact on energy demand for quite some time” in India, and demand destruction is likely to play out similar to what happened in the U.S. when the pandemic led to business closures and energy demand “fell off a cliff.”

Iran is also a key concern for oil, he said. Oil prices sold off Tuesday on reports that Russia appeared to imply that a deal to lift sanctions on Iran were close,” said Zahir, only for Russian diplomat Mikhail Ulyanov to later tweet that while “significant progress” had been made, “unresolved issues still remain.”

Still, with U.S. gasoline prices rising, in part from the Colonial pipeline issue, and increased oil demand, “we feel the [Biden] administration will be under pressure to help alleviate gasoline prices,” said Zahir. “We could see the administration ratchet up talks to get a deal with Iran and ease sanctions,” which could allow Iran to export more oil.

Also, with the Organization of the Petroleum Exporting Countries already increasing oil supplies and the demand destruction from India, “we feel the risk is to the downside in the near term for crude oil,” Zahir said.

West Texas Intermediate crude for June delivery
CL00,
-3.40%

CLM21,
-3.33%

fell $2.13, or nearly 3.3%, to settle at $63.36 a barrel on the New York Mercantile Exchange. Based on the front-month contracts, prices finished at their lowest since April 27, according to Dow Jones Market Data. The June contract will expire at the end of Thursday’s session.

July Brent crude
BRN00,
-0.12%

BRNN21,
-0.12%
,
the global benchmark, fell $2.05, or 3%, at $66.66 a barrel on ICE Futures Europe, also the lowest finish since April 27.

The EIA reported Wednesday that U.S. crude inventories rose by 1.3 million barrels for the week ended May 14. That followed declines in each of the previous two weeks.

On average, analysts polled by S&P Global Platts forecast a decline of 2.9 million barrels for crude stocks, while the American Petroleum Institute on Tuesday reported a 620,000-barrel increase.

The EIA data also showed crude stocks at Cushing, Okla., the delivery hub for Nymex futures, edged down by 100,000 barrels for the week, while total petroleum production was unchanged at 11 million barrels a day.

Gasoline supply fell by 2 million barrels, while distillate stockpiles declined by 2.3 million barrels for the week, the EIA said. The S&P Global Platts survey had expected a weekly supply climb of 600,000 barrels for gasoline and 200,000-barrel decline for distillates.

On Nymex, June gasoline
RBM21,
-2.93%

fell 2.7% to $2.10 a gallon and June heating oil
HOM21,
-2.61%

settled at $2.01 a gallon, down 2.4%.

“There were a few notable positives from a demand standpoint,” said Tyler Richey, co-editor at Sevens Report Research. “Refinery use unexpectedly rose by 0.2% to 86.3% with almost all of the gains coming on the East Coast as refiners stepped up operations to compensate for the Colonial Pipeline outage.”

Also, “the total amount of finished motor gasoline supplied, a proxy for demand, hit 9.224 million barrels per day for the week, which was the highest since mid-March of last year, before the depths of the pandemic, said Richey. “And that points to a further recovery in consumer demand at the pump.”

Still, “the market didn’t seem to care about the bullish undertones” in the supply data “with traders focusing on the reported progress in the nuclear negotiations with Iran,” Richey said.  

Brent crude on Tuesday briefly traded above $70 a barrel before turning south.

“Besides the strong technical resistance, increased risk aversion in view of the weakness on the stock markets and the massive slump in so-called cryptocurrencies is likely weighing on its price, as no doubt is the current news backdrop,” said Eugen Weinberg, commodity analyst at Commerzbank, in a note.

Global equities were under renewed pressure Wednesday, with U.S. stock indexes moving sharply lower. Bitcoin
BTCUSD,
-10.61%

fell below $40,000 for the first time in months, with crypto assets feeling pressure after the People’s Bank of China apparently warned against using digital coins as payment.

Commodities have seen broad gains in 2021 on surging demand and supply constraints, including supply-chain bottlenecks, as much of the world begins to emerge from the COVID-19 pandemic. But several highflying commodities have fallen back in recent sessions. Lumber futures
LB00,
+4.98%
,
for example, marked a seventh straight decline on Tuesday.

Read: Energy infrastructure may be more vulnerable to cyberattacks in next decade, warns Wells Fargo’s John LaForge

Rounding out action on Nymex, natural-gas futures ended lower ahead of Thursday’s EIA update on U.S. supplies of the fuel. June natural gas
NGM21,
-1.53%

fell 1.6% to $2.96 per million British thermal units.

Need to Know: This signal is telling investors that highflying stocks are ready to fall back to Earth, says fund manager

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