Another Unexpected Inventory Draw Buoys Crude, But Traders Still Covid-Shy

by Ship & Bunker News Team
Wednesday August 5, 2020

Suggesting once again that market resiliency and Covid concerns can affect crude traders simultaneously, oil prices on Wednesday rose 4 percent to their highest level since early March before worries over infection rates brought them back down again.

Nonetheless, Brent ended the session up 74 cents at $45.17 per barrel, while West Texas Intermediate oil settled 49 cents at $42.19 per barrel.

The initial enthusiasm was driven by the Energy Information Administration on Wednesday reporting that U.S. crude inventories fell by 7.4 million barrels last week compared to analytical expectations of a 3 million barrels - yet more physical proof that despite the dire Covid headlines, demand recovery is still robust. 

Still, analysts maintained a cautionary and even pessimistic stance: "We see gasoline demand coming in close to 7 percent year-on-year lower through Q3, with gasoil/diesel registering a decline of some 4 percent, implying a continued slowdown of the recovery, with a global return to 2019 levels this year increasingly in doubt," JBC Energy said, despite such a quick return never having been entertained by even the most optimistic of experts.

Andrew Lipow, president of Lipow Oil Associates, added that "gasoline and distillate inventories remain substantially above last year and we have been unable to cut into that overhang in a meaningful way."

Meanwhile, Exxon Mobile Corp. in a regulatory filing on Wednesday stated that if low energy prices persist this year, as much as one-fifth of its oil and natural gas reserves may be wiped off the books; and Chevron said it expects to revise its reserves downward by about 10 percent, mainly in the Permian Basin and Australia.

Crude traders were said to be spooked by reports of Covid deaths passing the 700,000 mark (still far less than the millions of deaths caused by the 1968 and 1957 pandemics); less reported were the decreasing infection rates in U.S. hot spots as well as in South Africa and other zones.

Also, while energy sector recovery isn't white hot, what benefits the U.S. also benefits other countries: Canada's dollar on Wednesday climbed to its highest in more than five months against its U.S. counterpart as oil prices rose, thus benefiting exports.

It still remains unclear if and when Covid vaccine development news will galvanize crude trading, but Wednesday saw Johnson & Johnson reaching a $1 billion deal with the U.S. for 100 million doses; Moderna is discussing supply deals with various countries; Pfizer announced a vaccine deal with Canada; and Valneva reported that full UK investment in its vaccine will be sealed within weeks.