Oil Mixed On India Fears But A Surge In Demand Is Looming, Say Experts

Bahrain's oil minister believes a supply challenge could also be brewing: File Image/Pixabay

Despite a substantial drop in U.S. crude inventories, oil prices were mixed on Wednesday, a sign that trader concerns once again were focused on the demand impact of rising Covid infections in India as well as Japan.

Shortly after the Energy Information Administration reported that U.S. stockpiles fell by 8 million barrels in the most recent week, exceeding expectations for a 2.3 million barrel drop, Brent settled at $68.96 per barrel, up 8 cents; West Texas Intermediate settled at $65.63 per barrel, down 6 cents.

Traders also seemed unaffected by the EIA's disclosure that U.S. exports rose to 4.1 million bpd, the most since March of last year.

The worry is that India, whose oil imports in March rose from the previous month, will soon impose a national lockdown to combat the infections and thus curb economic activity; but countering this scenario is an acceleration in Euro zone activity coinciding with an accelerated vaccination rollout, and some parts of the U.S. and all of the U.K. rapidly returning to normal.

Phil Flynn, senior market analyst at Price Futures Group Inc., downplayed Wednesday's trading activity by remarking, "There's a little bit of disappointment on gasoline, but oil demand is back, and it's gaining momentum."

Although Phil Streible, chief market strategist at Blue Line Futures, theorized that the price of oil has "got a little bit ahead of itself," he added that it's hard to see a summer demand boost "being derailed."

Indeed, executives from Hawaiian Airlines, Boeing Co., and Valero Energy Corp. are reportedly anticipating an explosion of pent-up demand this summer that could translate into a surge of as much as 30 percent.

The winding down of the pandemic prompted Mohammed Al Khalifa, oil minister for Bahrain, to tell media that air travel is coming back and that a supply challenge could be on the horizon–a phenomenon exacerbated by a cycle of low investment in the energy sector.

Also on Wednesday, Marathon Oil Corp. became the latest energy producer to report a recovery from pandemic lockdown induced lows: its adjusted income stood at $166 million for the first quarter ended March 31, compared with a loss of $98 million in the fourth.