Oil Down 1%, Reacting Belatedly to OPEC’s Cuts Rollback

A day late, but perhaps better late than never for the bears in the market.

Crude prices fell 1% on Thursday, reacting belatedly to the decision by the Organization of the Petroleum Exporting Countries from a day earlier to rollback 20% of production cuts that OPEC had maintained since the start of May.

The market rallied instead on Wednesday, responding to a large unexpected drawdown in U.S. crude oil stocks.

“Oil news is very light other than people weighing in on the relaxing of the OPEC oil cuts that are coming,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.

For now, there wasn’t “enough demand information” that clearly indicated a bullish or bearish market for oil in the coming weeks and months, Shelton said. 

He, however, added: “The evidence in the U.S. that I see suggests that there is enough demand to increase runs to some extent as gasoline stocks are drawing and margins are ‘OK’.”

New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled down 45 cents, or 1%, at $40.75 per barrel.

London-traded Brent, the global benchmark for oil, fell 42 cents, or nearly 1%, to settle at $43.37.

WTI settled up 2.2% on Wednesday while Brent rose 2.1%, responding to a blockbuster weekly drawdown on U.S. crude.

The Energy Information Administration reported in the previous session that US crude stockpiles fell 7.5 million barrels for the week ending July 11. Analysts tracked by had expected a decline of 2.1 million barrels, after the previous week’s rise of 5.6 million barrels.

The EIA also reported a drop of 3.1 million barrels in gasoline stockpiles and slide of nearly 500,000 barrels in diesel-dominated distillate inventories. Analysts had expected a gasoline draw of 643,000 barrels and distillates build of nearly 1.5 million barrels.

The Saudi-led and Russia-assisted OPEC+ alliance, meanwhile, said on Wednesday it will withhold 7.7 million barrels a day from the market from August onward, compared with the 9.6 million in July. 

Some say that a 2 million barrel reduction in OPEC cuts could go a long way in negating weekly draws in U.S. crude.

Case in point:  Crude inflows into the United States fell by 1.8 million barrels last week, the most in four years, underscoring the work by OPEC, or precisely Saudi Arabia, to reduce shipments to the United States in order to create low inventory levels that would boost WTI prices.

if the Saudis start sending more of their cargo in the direction of the United States, that could change.

And the jury is still out on how demand for oil could fare amid the new wave of coronavirus infections across the world. 

The United States reported more than 67,000 new cases of coronavirus on Wednesday. Top U.S. pandemics expert Anthony Fauci said recently the daily case growth could reach 100,000 without proper social-distancing and other safety measures. 

Some 3.5 million Americans have already been infected by Covid-19, with a death toll reaching nearly 140,000.  A new model by the University of Washington predicts 200,000 coronavirus deaths in the United States by Oct. 1, casting further doubts on economic reopening from lockdowns. 

The U.S. economy shrank 5% in the first three months of 2020 for its sharpest decline since the Great Recession of 2008/09, as most of the 50 states in the country went into lockdown to stem the outbreak of the virus. While most businesses  have reopened over the past two months,  economists still warn of a double-digit recession by the second quarter.

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