Oil Gains On Larger Than Expected Drawdowns And Global Signs Of Economic Revival

Saudi Arabia is especially bullish on a restoration of the energy sector: File Image/PixaBay

Rising coronavirus rates may be the dominant concern of media and health officials, but crude prices on Wednesday climbed - this time by over 1 percent – on the strength of declining inventories and positive manufacturing data, all of which again indicate that people around the world are determined to get on with their lives.

After Energy Information Administration data showed that U.S. inventories dropped by 7.2 million barrels last week (considerably more than analytical predictions of a 710,000 barrel drop), Brent rose 76 cents, or 1.8 percent, to settle at $42.03 per barrel, while West Texas Intermediate rose 55 cents, or 1.4 percent, to settle at $39.82 per barrel.

Prices were also supported by: a private business survey showing that in June factory activity in China grew at a faster clip; manufacturing sector contractions in Germany slowed; and factory activity in France rebounded into growth.

Also, shipping sources reported that tens of millions of barrels of crude and oil products stored on tankers at sea due to the government-imposed coronavirus lockdowns are now being sold.

IHS Markit estimated that crude held on tankers fell below 150 million barrels by the end of June, down from more than 180 million barrels in late April; refined products dropped to 50 million barrels from a mid-May peak approaching 75 million barrels, with gasoline stocks being the fastest to draw down.

Fotios Katsoulas, an analyst at IHS, said, “Volumes shown under floating storage can potentially drop rather fast during July,” and other experts predicted normal levels would be reached during the autumn.

Better still, Phil Flynn, senior market analyst at Price Futures Group Inc., speculated that “Saudi imports are down to a trickle and I think this [crude] draw is going to be the first in a string of draws.”

All told, oil prices have achieved their best quarterly performance in 30 years during the three months through to the end of June, but Martin Fraenkel, president of S&P Global Platts, warned that price volatility will likely continue over the coming months due to “really high” dislocations throughout the global energy sector.

A considerably more optimistic Amin Nasser, chief executive of Saudi Arabia’s state-owned Saudi Aramco, said of the lockdowns that caused worldwide economic bedlam, “The worst is behind us; I’m very optimistic about the second half of this year.” 

Despite the relentless reports of rising coronavirus rates (which were generally expected when the lockdowns were lifted but media is apparently surprised by), Nasser added that “I am also not as concerned about a second wave [of the virus] because I think we are much better prepared now; all countries, all medical establishments are much better prepared.”

More positive signs on Wednesday that the world refuses to live in fear of the pandemic included: Africa's most populous nation, Nigeria, announcing it will resume domestic flights from July 8 despite mounting infection rates (its government reportedly maintains that the economic damage of a stringent lockdown could be worse than the harm done by Covid-19); and Egypt restarting international flights and reopening major tourist attractions.

Finally, as usual, buried beneath the alarmist news stories was a report from German biotech firm BioNTech and U.S. pharmaceutical giant Pfizer that its Covid-19 vaccine has shown potential and was found to be well tolerated in early-stage human trials; this is the fourth early-stage drug to show promise in human testing, and 16 others are currently being tested on humans in anticipation of a roll out later this year or early next.