Roller Coaster Trading Ends In A Slump For Oil, But Demand Continues To Surge

Meanwhile, slow post-Ida recovery helps support prices: File Image/Pixabay

Crude traders sent oil on a roller coaster ride Thursday, first falling due to a U.S. Treasuries rally, then surging on a much bigger than expected U.S. gasoline draw, then ultimately collapsing due to China announcing it would release crude reserves in phases via public auction to help domestic refiners control costs.

Specifically, China's National Food and Strategic Reserves Administration said the country had tapped its giant oil reserves to "to ease the pressure of rising raw material prices"; the agency also said a "normalized" rotation of crude oil in the state reserves is "an important way for the reserves to play its role in balancing the market" - an indication that barrels may continue to be released.

Brent on Thursday fell $1.15, or 1.6 percent, to settle at $71.45 per barrel, while West Texas Intermediate dropped $1.16, or 1.7 percent, to $68.14.

Amid the volatility, oil was briefly supported by reports that another ship was stuck in the Suez Canal; however, it was quickly re-floated and caused no delays.

According to government data, U.S. crude stockpiles declined by 1.5 million barrels in the week to September 3, much less than the 4.6-million barrel draw forecast; however, the 7.2 million barrel drop in gasoline inventories were massive compared to a predicted decline of just 3.4 million barrels and was yet more evidence that demand is defying the dire expectations of Covid obsessed analysts.

Better still, the robust demand recovery is hardly confined to the U.S.: according to SIA Energy, oil demand in China will be 13 percent higher next quarter than in the same period in 2019 before the pandemic, and IHS Markit said Europe has just had its best August for gasoline demand in a decade.

Sengyick Tee, an analyst at SIA, said, "The worst for Asian fuel demand is over and we see a soft recovery of oil demand in the coming months."

Meanwhile, the continued slow rate of production recovery by energy giants following Hurricane Ida briefly bolstered trading on Thursday and may presumably cause gains in upcoming sessions now that Royal Dutch Shell on Thursday declared force majeure on several contracts due to damage to its offshore facilities in the Gulf of Mexico.