Over $100 oil again despite plunge in US demand

LAST UPDATE 19:55

A significant reduction was again presented in US oil stocks, but those of gasoline remained unchanged to the surprise of analysts, even though the development did not particularly “scare” the market.

In particular, as informed by the US Energy Information Administration (EIA), in the week ended August 19, US crude inventories fell by 3.3 million barrels, falling to 421.7 million.

The decline in inventories was largely in line with S&P Global Commodity Insights’ forecast of 3.2 million barrels, while analysts polled by Reuters had expected a much smaller decline of 933,000 barrels.

It is worth noting, however, that the decline in stocks was largely limited by the new release of oil from the US strategic stockpile during the week, by more than 8 million barrels.

What surprised analysts the most were gasoline inventories that remained essentially unchanged (down just 27,000 barrels), when the Reuters estimate called for a drop of 1.5 million barrels and the S&P for 2.5 million.

The impact of the unexpected drop in demand for gasoline was also temporarily felt on the board, with crude contracts immediately erasing their intraday gains, but concerns about tight supply quickly prevailed and prices returned to the upside.

Specifically, the Brent October is now on the rise 0.8% and trades in 101.6 dollars the barrel, while shortly after the announcements of the IEA it had reached to retreat up to 99.1 dollars.

Similarly, the American WTI recovered from the low of the day at $92.79 a barrel and is now trading at $94.6 with profits 1%.

Despite last week’s rebound, the new data put total gasoline demand in the four-week average down 7% from the same period last year.

Analysts are concerned about weak fuel demand, saying it portends a marked slowdown in economic activity.

“Although crude inventories have moved sharply lower, the plunge in gasoline demand is dragging the market lower,” notes Andrew Lipow, president of Lipow Oil Associates. “To me, that’s the most remarkable thing about the statistics,” he adds.

But on the other hand, Saudi Arabia’s warning that it will cut production if necessary to support prices seems to count more for the market.

“The possibility of an OPEC+ production cut hinted at by Saudi Arabia this week was a catalyst for buyers,” an IG Asia analyst said.

Oil has lost a quarter of its value since early June on fears of an economic slowdown.

Saudi Arabia’s oil minister, Abdulaziz bin Salman, stressed this week that the derivatives market is increasingly disconnected from fundamentals and the OPEC+ alliance may be forced to cut output.