Rise in Inventories, Weak OPEC Demand Forecast Depress Oil Prices

By Adedapo Adesanya

Oil futures fell on Wednesday as the US government reported that domestic crude supplies edged higher in the latest week, renewing worries about oversupply.

The Brent crude fell 45 cents or 1.1 percent to trade at $40.51 per barrel, while the US West Texas Intermediate (WTI) crude lost 71 cents or 1.85 percent to trade at $37.75 per barrel.

The Energy Information Administration (EIA) reported on Wednesday that US crude inventories rose by 1.2 million barrels for the week ended June 12.

Compared with a forecast by analysts polled by S&P Global Platts, a projection of an average decline of 3.5 million barrels was made. The American Petroleum Institute (API) on Tuesday, however, reported a rise of nearly 3.9 million barrels.

Previous gains of prices in the short term have been affected by global growth concerns, rising US stockpiles and coronavirus related developments and with the rise in inventories, it is bringing about problems that traders faced in previous months.

Prices were also affected by a monthly report released Wednesday from the Organization of the Petroleum Exporting Countries (OPEC), which forecast that global oil demand will decline in the second half of the year, but at a much slower pace than the first half, which was marked by lockdowns of activities to limit the spread of COVID-19.

The OPEC monthly report released on Wednesday predicted that global oil demand will fall by 6.4 million barrels per day in the second half of this year. That’s at a much slower rate than the decline of 11.9 million barrels per day seen in the first half.

Overall for 2020, the OPEC report sees a decline of 9.1 million barrels per day in world oil demand, unchanged from the previous month’s forecast, but it raised its projection for non-OPEC production this year.

This happened ahead of Thursday when an OPEC-led meeting of the Joint Ministerial Monitoring Committee (JMMC) will hold via video conference to review compliance with the recent global production cuts.

Recent worries of COVID-19 resurgence is something traders are observing, especially in major markets, which could spell fresh rounds of lockdown.

The World Health Organization (WHO) said it was moving to update its guidelines after results showed the corticosteroid medication dexamethasone cut death rates by about a third among the most severely ill COVID-19 patients.

However, the virus is spreading in parts of the United States, while scores of flights were cancelled and schools were shut in Beijing to head off a new virus outbreak in the Chinese city.