Oil Pares Rise In Wake of Mounting U.S. Fuel Supplies

(Bloomberg) -- Oil eased off of gains as investors assessed a government report that showed a decline in U.S. crude inventories, yet an increase in refined product supplies.

U.S. benchmark crude futures surged as much as 4.4% on Wednesday before fading from session highs. Energy Information Administration data showed domestic crude stockpiles fell to the lowest since April, with shipments from Saudi Arabia declining to the second-lowest on record.

Still, gasoline and distillate stockpiles increased by a combined 2 million barrels as the summer driving season nears its end. The recovery in gasoline demand has stagnated, with deliveries stuck around 8.6 million barrels a day, close to 10% down on year-earlier levels.

“The problem is, the clock’s running out on drawing crude inventories down,” with summer driving season coming to a close, said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “It happens pretty much every year, but this year it’ll be a bigger problem,” given depressed demand.

After rebounding from a plunge below zero in April, crude’s rally has stalled as the resurgence of the coronavirus pandemic weighed on the outlook for a swift demand recovery. U.S. benchmark futures have fluctuated in a tight trading range near $40 a barrel since June.

“Given OPEC+ will continue to match its sequestered supply to the growing demand and coronavirus risks still remain a major global demand risk factor, a sustained breakout” for West Texas Intermediate futures into a higher trading range of $45 to $50 a barrel “is unlikely this year,” Bart Melek, head of global commodity strategy at TD Securities, said in a note.

Meanwhile, American shale drillers have signaled the end of output growth, with Diamondback Energy Inc.’s chief executive officer saying there are currently no market signals that such growth is needed.

U.S. crude production ticked lower by 100,000 barrels a day last week, the EIA data showed.

Domestic oil producers “indicated that they’re going to be disciplined, and not necessarily grow production, which will be beneficial for oil prices in the longer term,” said Rob Thummel, portfolio manager at Tortoise.

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