Oil extends slump after surprise jump in U.S gasoline stockpiles
Crude futures extended the longest slide in five months after a surprise increase in U.S. gasoline inventories that signaled fuel demand may be under threat as Covid-19s delta variant menaces the economic recovery.
West Texas Intermediate dropped by almost 1% on Wednesday, the fifth straight daily decline. Domestic gasoline stockpiles inventories climbed by 696,000 barrels, the first increase in more than a month, according to data released by the Energy Information Administration on Wednesday. Meanwhile, crude stockpiles declined by a larger-than-forecast 3.23 million barrels.
"The surprise gasoline build is certainly weighing on the market," said Matt Sallee, who helps manage about $8 billion at Tortoise.
The report followed an industry-funded American Petroleum Institute tally on Tuesday that saw a 1.16-million decline in crude inventories with supplies at the Cushing, Oklahoma, hub dropping by 1.74 million. The group also pegged the drop in gasoline stockpiles at almost 2 million.
Crude surged during the first half of the year as vaccination rollouts increased confidence about the pace of economic recovery. But the rally was knocked off course in recent weeks amid signals in the U.S. and China suggesting the spread of Covid-19's delta variant may be hurting energy demand.
Despite the daily slump, there were positive signs emerging from the shape of the oil futures curve. Brent's nearest timespread widened to a backwardation of 48 cents Wednesday. That structure - where the nearest contracts are more expensive than those at later dates - has started to indicate a stronger market in recent days, after slumping to an 11-week low on Monday.
WTI for September delivery rose 0.2% to $66.75 a barrel at 11:33 a.m. in New York. Brent for October settlement gained 18 cents to $69.21 a barrel.
There were also more positive signs emerging from the shape of the oil futures curve. Brent's nearest timespread widened to a backwardation of 48 cents Wednesday. That structure - where the nearest contracts are more expensive than those at later dates - has started to indicate a stronger market in recent days, after slumping to an 11-week low on Monday.
"The $100-a-barrel predictions we saw earlier in the summer were rendered completely inaccurate as Asian demand continues to be muted," said Jay Hatfield, chief executive officer of Infrastructure Capital Management. "Delta notwithstanding, an overall stockpile decline indicates some positive long-term fundamentals for oil."
