U.S. West Texas Intermediate and international-benchmark crude oil futures are trading sharply lower on Thursday as a jump in coronavirus infections around the world raised fears a rebound in fuel demand would stagnate just as major oil producers are set to raise output in August.
The market opened slightly lower on worries over demand, put started its plunge after Reuters reported that Iraq increased oil exports in July, while pumping above the OPEC+ target.
Oil Inventories Plunge, but Fuel Inventories Rise Against Expectations
Wednesday’s U.S. Energy Information Administration (EIA) weekly inventories report revealed exactly what traders are worried about. The market is trading lower despite an unexpected plunge in crude oil inventories. This is because a rise in fuel stocks indicated that demand is struggling due to the spread of coronavirus. Consumers are driving less, weighing on gasoline prices and flying less, putting pressure on distillates like jet fuel.
According to the U.S. Energy Information Administration (EIA), crude inventories fell by 10.6 million barrels in the week to July 24 to 526 million barrels. Analysts were looking for a 1 million barrel build.
Net U.S. crude imports fell 1 million barrels per day, the EIA said, dropping to 1.9 million bpd. More importantly, U.S. gasoline stocks rose by 654,000 barrels, the EIA said, compared with forecasts for a 733,000-barrel drop. Distillate stockpiles also jumped by 503,000 barrels, versus expectations for a 267,000-barrel drop, the EIA data showed.
Iraq Increases Oil Exports in July, Pumps Above OPEC+ Target
Iraq’s crude oil exports have increased so far in July, shipping data showed and industry sources said, suggesting OPEC’s second-largest producer is still undershooting its production cut target under an OPEC-led deal.
The short-term outlook is bleak with demand for fuel falling and OPEC+ preparing to taper its production cuts. Both combine to produce a bearish outlook for crude oil prices.
The selling pressure could accelerate over the near-term due to demand concerns with COVID-19 infections increasing and raising the prospects for lockdowns to be reimposed.
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