Oil prices fall as U.S. crude supplies decline as expected, but COVID remains ‘elephant in the room’

The EIA numbers showed a decline in crude and distillate inventories and a small increase in gasoline stocks, which should be “bullish, indicating that U.S. oil demand is not significantly affected by rising COVID case numbers,” Michael Lynch, president of Strategic Energy & Economic Research, told MarketWatch. That data should be “supportive of prices in the near term, putting a floor for WTI at $65 with pressure towards $70.”

However, COVID is “the elephant in the room right now,” he said.

West Texas Intermediate crude for September delivery CL00, +0.20% CLU21, +0.20% edged down by 5 cents, or nearly 0.1%, to $66.54 a barrel on the New York Mercantile Exchange.

October Brent crude BRN00, +0.41% BRNV21, +0.41%, the global benchmark, headed 6 cents, or 0.1%, higher to $69.09 a barrel on ICE Futures Europe.

“Investors are worried that oil prices went too high during its rallying phase when optimism was sky-high about demand returning to normal. But now, investors are forced to reassess those rosy views and are realizing that demand is actually a little softer,” said Fawad Razaqzada, market analyst with ThinkMarkets, in a note ahead of the EIA supply data.

He noted that oil inventories have missed expectations in recent weeks as a previous run of sharp inventory drawdowns came to a halt.

The EIA reported a weekly inventory increase of 700,000 barrels for gasoline, but distillate stockpiles fell by 2.7 million barrels. The S&P Global Platts survey forecast supply decline of 2.3 million barrels for gasoline, while distillate stocks were expected to rise by 700,000 barrels.

Among the petroleum products, September gasoline RBU21 fell 0.5% to $2.16 a gallon. September heating oil HOU21 tacked on 0.2% to $2.04 a gallon.

“Adding to the supportive crude draw has been a decent drop in distillate inventories amid a jump in implied demand,” said Matt Smith, director of commodity research at ClipperData.

The amount of distillate fuel oil supplied, a proxy for demand, rose to 4.3 million barrels per day last week, from 3.7 million barrels the week before, according to the EIA. Finished motor gasoline supplied, meanwhile, declined to 9.3 million barrels per day last week from 9.4 million barrels per day.

The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by 1 million barrels for the week, while total domestic petroleum production rose 100,000 barrels to 11.4 million barrels per day.

Rounding out action on Nymex Wednesday, September natural gas NGU21, -0.21% traded at nearly $3.85 per million British thermal units, up 0.2%, ahead of the EIA’s weekly update on supplies of the commodity due out Thursday.