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Oil futures headed lower Wednesday, with a second weekly decline in U.S. crude supplies reported by the Energy Information Administration, which failed to ease pressure from demand concerns.
The rising cases of COVID-19 in the U.S. and Europe, in particular, have led to the potential for more economic shutdowns, which can impede demand for energy.
The U.S. Energy Information Administration on Wednesday “reported a less than expected draw in crude inventories last week,” Lukman Otunuga, senior research analyst at FXTM, told MarketWatch. While this data are relevant, “oil prices remain more concerned with rising coronavirus cases across the globe and demand-side fears.”
West Texas Intermediate crude for December delivery CL.1, -3.40% was down $1.41, or 3.4%, at $40.29 a barrel on the New York Mercantile Exchange.
From a technical perspective, a “move back below $40 could re-open the doors towards $38,” said Otunuga.
December Brent crude BRN00, -3.03%, the global benchmark, was off $1.22, or 2.8%, at $41.94 a barrel on ICE Futures Europe.
On Wednesday, the EIA reported that U.S. crude inventories fell by 1 million barrels for the week ended Oct. 16. That followed a 3.8 million-barrel decline the week before.
On average, analysts polled by S&P Global Platts forecast a weekly decrease of 1.9 million barrels, while the American Petroleum Institute on Tuesday reported an increase of 584,000 barrels.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by 1 million barrels for the week. Total U.S. oil production fell by 600,000 barrels to 9.9 million barrels amid the effects of Gulf of Mexico shut-ins tied to Hurricane Delta earlier this month.
Gasoline supply, meanwhile, climbed by 1.9 million barrels, while distillate stockpiles fell by 3.8 million barrels last week, the EIA said. The S&P Global Platts survey had shown expectations for supply declines of 1.6 million barrels for gasoline and 3 million barrels for distillates.
On Nymex, November gasoline RBX20, -3.80% fell by 3.9% to $1.1421 a gallon and November heating oil HOX20, -3.43% shed 3.3% to $1.1343 a gallon.
Despite the pullback for oil, traders may find some encouragement from prospects for another U.S. stimulus package and the recent committee meeting of the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+.
OPEC compliance with production cuts is “widely expected to protect the downside for oil prices,” said Stephen Innes, chief global markets strategist at axi, in a Wednesday note.
“While it is perhaps a bit early to consider modifying the existing production cut plan, this may explain some of the negative sentiment in oil recently,” he said.
Still, “suppose the ramp-up of Libyan production and the global demand recovery pace is a problem for the oil price then expect, as most oil traders do, a slower return of shut-in OPEC+ production,” said Innes. “This seems likely to be addressed at the full OPEC+ meeting” on Nov. 30 and Dec. 1.
For now, the current OPEC+ agreement calls for output cuts of 7.7 million barrels a day through December, which will then taper to 5.8 million barrels a day starting in January.
OPEC+ could move to delay the relaxed curbs at any point, said Craig Erlam, senior market analyst at Oanda. He points out that by the next meeting, “they’ll know who the U.S. President is going to be for the next four years, how bad the second wave [of COVID-19 infections] is and how quickly Libya is ramping up production.”
Read: Here’s how the U.S. presidential election could shake up the oil market
Meanwhile, natural-gas futures were a standout on Nymex, with the November contract NGX20, +3.60% moving up by 3.5% to $3.014 per million British thermal units. Prices for the front-month contract haven’t settled above $3 since January 2019, according to FactSet data.
“The market is moving higher on the cold weather outlook which will boost demand” and liquefied natural gas exports, said Dan Flynn, an analyst at The Price Futures Group.
