Oil Reverses Course - Barely - As Investors Reconsider Glut Hysteria

Meanwhile, Washington aims to restock its Strategic Petroleum Reserve - somewhat: File Image/Pixabay

Oil investors on Tuesday unexpectedly reversed course and caused modest gains for two key benchmarks, as trade talks between China and the U.S. grew closer and long-standing fears of a supply glut were reconsidered.

Brent settled up 31 cents at $61.32 per barrel, and West Texas Intermediate settled up 30 cents at $57.82.

As is the case with sentiment-driven trading, fundamentals remained unchanged, but bearish sentiment was dented somewhat by Giovanni Staunovo, analyst at UBS, who suggested that the International Energy Agency’s warning  earlier this month of a surplus next year leading to a super contango, was oversold.

He wrote in a note, "While supply concerns have increased in recent weeks again, we believe the oil market is oversupplied but not in a glut," and he added that "We expect oil prices to stabilize around current levels.”

This, combined with U.S. president Donald Trump stating he expects to reach a fair trade deal with China when he meets with president Xi Jinping in South Korea next week, was enough for traders to shrug off news that would have otherwise likely caused more losses.

Specifically, expectations remained that U.S. crude stockpiles rose last week, and this prompted Scott Shelton, energy specialist at TP ICAP Group, to remark, "The reality of stock builds appears to be finally here and prices should head lower to put a deeper contango in the market."

However, late-breaking news on Tuesday surprised in the form of the American Petroleum Institute reporting a decline in crude inventories in the United States by 2.9 million barrels in the week ending October 17; this more than offset last week’s 2.7 million barrel build.

Gasoline inventories saw a decrease of 236,000 barrels, after rising by 2.9 million barrels in the week prior; and distillates shed 974,000 barrels.

Also on Tuesday, Washington announced plans to purchase 1 million barrels of crude for delivery to the U.S. Strategic Petroleum Reserve in December and January.

The Reserve, which once held 700 million barrels, was gutted by former U.S. president Joe Biden in a failed bid to lower gasoline prices.