Oil prices soar as USA inventories grow less than expected

Marco Green
April 30, 2020

The discount for June futures relative to July was around $4 after blowing out to nearly $8 Tuesday as major index funds ditched the front-month contract.

In morning London deals, West Texas Intermediate crude for June delivery tumbled more than 21 per cent to $10.07 - having plunged 25 per cent a day earlier.

Brent crude oil, the worldwide benchmark, rose 11 per cent to $22.61 a barrel.

The API report showed crude oil stockpiles at Cushing, Oklahoma, a key US oil hub, increased by 2.49 million barrels.

Oil prices were up on Wednesday as crude inventories in the USA are expected to increase less than the market expectation last week. USA gasoline inventories fell by 3.67 million barrels, compared with expectations for a build of 2.49 million.

"In part thanks to better than expected, or more accurately not as bad as feared, US inventory data, WTI prices have managed to make up lost ground", JBC Energy said.

US crude inventories increased by 9m barrels last week and are close to an all-time high, according to the US Energy Information Administration.

While storage is rapidly filling up, production cuts by USA shale producers, estimated by consultants Rystad Energy at 300,000 barrels per day (bpd) for May and June, should help slow flows into tanks. Weekly gasoline demand rose by 549,000 barrels, the most since May.

Traders "are bargain hunting after a couple of days of massive sell-offs", OANDA senior market analyst Jeffrey Halley told AFP. The agreement by OPEC members and other oil majors to cut around 10 per cent of global supply is likely too small to offset the roughly 20 per cent decline in demand resulting from COVID-19-related economic restrictions, said UBS analysts.

Officials in the states of North Dakota and Oklahoma are also examining ways to legally allow output cuts.

Even with the Organization of the Petroleum Exporting Countries (Opec) and allies led by Russian Federation having agreed to record output cuts of almost 10 million barrels per day (bpd) from May 1, that volume is not almost enough to offset a drop in demand of around 30 million bpd due to Covid-19 restrictions.

"It's a little bit of good news that maybe storages aren't filling quite as quickly in the U.S.as you would have thought", said Lachlan Shaw, head of commodity research at National Australia Bank in Melbourne.

IHS Markit Vice Chairman Daniel Yergin argues the next four weeks will be a particularly rough time for the oil industry as demand stays low.

Other reports by Click Lancashire

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