Oil stalls as Covid-19 concerns weigh on lower crude stocks

Melbourne — Oil prices were mostly flat on Thursday, as a boost from lower-than-expected US crude stocks that lifted the market to five-month highs in the previous session gave way to fuel demand concerns amid rising coronavirus infections.

US West Texas Intermediate (WTI) crude futures eased 3 US cents, or 0.1%, to $42.16 a barrel by 4.36am GMT, while Brent crude futures rose 9c or nearly 0.2% to $45.25.

The two benchmark contracts rose more than 1% on Wednesday to their highest level since March 6, completing a four-day rally, after the Energy Information Administration (EIA) reported a much bigger than expected drop in US crude stockpiles.

However, investors remained wary of rising US refined product inventories at a time when US central bankers said the resurgence in cases was slowing the economic recovery in the world’s biggest oil consumer.

EIA data showed distillate stockpiles, which include diesel and heating oil, climbed to a 38-year-high, and gasoline inventories unexpectedly rose for a second week in a row.

“It is difficult to get overly constructive towards the oil market with demand having stalled and this product overhang,” ING Economics said in a note on Thursday.

The  EIA calculated that gasoline demand remains around 8.6-million barrels a day, about 10% lower than a year earlier, just as the US driving season, which ANZ Research called the “world’s biggest seasonal demand period”, was winding down.

Still, recent declines in the US dollar have supported higher oil prices. Since oil futures are priced in dollars, crude prices tend to rise to offset the weaker currency.

“Since oil is priced in dollars, that is good for oil,” AxiCorp market strategist Stephen Innes said in a note.

The dollar logged its biggest monthly percentage fall in a decade against a basket of six currencies in July and a Reuters poll found analysts expect it to continue falling into 2021.

Reuters