Oil firms on drop in US stockpiles, but virus worries cap gains

London — Oil prices firmed on Wednesday after data showed a big drop in US crude inventories, though concerns that mounting coronavirus infections will lead to reduced fuel demand capped gains.

Brent crude was up 44c, or 1%, at $44.87 a barrel by 8.10AM GMT, while West Texas Intermediate oil rose 4c, or 1%, to $42.13 a barrel.

US crude inventories fell 8.6-million barrels in the week to August 1 to 520-million barrels, compared with analysts’ expectations for a 3-million barrel drop, the American Petroleum Institute found.

Official figures are due later on Wednesday.

“A bullish sentiment is justified initially today on the US stocks news, but we believe bulls may need to take shelter back at the ranch in coming days, as Covid-19 again takes centre stage,” Rystad Energy’s head of oil markets Bjørnar Tonhaugen said.

Coronavirus cases continue to rise. In the US, deaths are at more than a 1,000 a day, while dozens of states have had to pause or scale back plans to reopen their economies.

“We see petrol demand coming in close to 7% lower year on year throughout quarter three, with gasoil/diesel registering a decline of some 4%, implying a continued slowdown of the recovery, with a global return to 2019 levels this year increasingly in doubt,” JBC Energy said.

The consultancy sees jet fuel demand at 50% lower throughout quarter three compared with 2019.

Sentiment drew some support from signs that talks between Democrats in the US Congress and the White House on a new coronavirus relief package are making progress, though the sides remain far apart.

US factory data this week also showed an improvement in orders, which some analysts took as a hint of economic recovery.

Germany’s July IHS Markit services purchasing managers’ index rose to 55.6, its first time above the 50 mark that separates expansion from contraction since lockdown measures were introduced in March.

Reuters