Oil Sheds 3% as Weakened Demand Outweighs Inventories Drop
By Adedapo Adesanya
Prices of major benchmark crudes found a home with the bears on Wednesday after losing more than 3 per cent as further pandemic-related economic shutdowns showed that they would weaken energy demand even as crude inventories dropped.
The Brent crude went south by $1.45 or 3.34 per cent to $41.71 per barrel while the United States’ West Texas Intermediate (WTI) crude fell by $1.71 or 4.1 per cent to close at $40.00 per barrel.
Prices had briefly moved higher after the Energy Information Administration (EIA) reported a crude oil inventory decline of 1 million barrels for the week to October 16. This followed a 3.8 million-barrel decline the week before.
The report came after another group, the American Petroleum Institute (API), pressured prices by reporting an unexpected build in inventories, even though it was a moderate one, at a little over 500,000 barrels.
The less-than-expected crude inventory draw reported by the agency was relevant to the market but oil prices remained more concerned with rising coronavirus cases across the globe and demand-side fears.
But fears of a resurgence of coronavirus cases, additional lockdown measures in Europe, and the looming threat that the Organisation of the Petroleum Exporting Countries (OPEC) could turn on the taps in January as originally planned.
OPEC and its allies, OPEC+, plan to ease output cuts from 7.7 million barrels a day to 5.8 million barrels a day from next year but considering the situation on ground, there were talks in some quarters that they might halt plans but the recent compliance committee meeting did not address this.
Investors will be waiting for the full OPEC+ meeting to hold November 30 and December 1 to see if the body will sustain prevent the level of cuts or will it turn on more taps.
Contributing the sour outcome on Wednesday was the COVID-19 infections in the United States and Europe and the potential loss of energy demand continued to add pressure to prices.
Analysts also continue to monitor Libya’s position, although the country is still a long way from pumping the 1.2 million barrels a day it supplied prior to the January blockade, it is speedily ramping up production and barrels from the North African nation are weighing on oil prices just as tighter virus restrictions in many countries sap fuel demand.