Rising COVID-19 Cases, US Crude Inventories Weaken Oil Prices

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Image Credit: Reuters

By Adedapo Adesanya

The rise in crude oil inventories in the United States last week as reported by the Energy Information Administration (EIA) dampened prices on Wednesday with the Brent grade declining by 13 cents to settle at $82.18 per barrel and the West Texas Intermediate (WTI) crude futures closing 23 cents lower at $78.27 per barrel.

The EIA said crude inventories increased by one million barrels for the week to November 19 and at 434 million barrels, crude oil inventories were still 7 per cent below the five-year average for this time of year.

In the preceding week, the agency had reported a draw of 2.1 million barrels. In the week under review, analysts had expected a 481,000-barrel draw.

Investors continue to weigh the effectiveness of a US-led release of oil from strategic reserves and turned their focus to how producers will respond.

The US, which is the world’s largest oil producer, on Tuesday said it would release up to 50 million barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain to try to cool prices after the Organisation of the Petroleum Exporting Countries (OPEC) ignored calls to pump more.

On Wednesday, Japan said it will release a few hundred thousand kilolitres of oil from its national reserve, but the timing has not been decided.

The coordinated release could add about 70 million to 80 million barrels of crude supply, smaller than the more than 100 million barrels the market has been pricing in.

However, analysts said the effect on prices was likely to be short-lived after years of declining investment and a strong global recovery from the COVID-19 pandemic.

JP Morgan Global Commodities Research said any impact on oil prices from the release of crude may not be sustained for long.

The market will be waiting for how the Organisation of the Petroleum Exporting Countries and allies (OPEC+) will react when it meets on December 2 to decide whether it will stick to cuts or decide to ramp up production.

Also affecting the market is coronavirus infections that broke records in parts of Europe, prompting new curbs on movement.

Countries on the continent are attempting to curb the spike through various means – from a national lockdown in Austria, to limiting access to certain services elsewhere or pushing for an increase in vaccination rates.

Ministers of the European Union (EU) met to discuss the rollout of booster shots and their impact on the bloc’s digital vaccination pass just as France and Italy struggle to enforce preventive measures.

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