Oil prices jump on United States inventory drop

Daniel Fowler
July 31, 2020

West Texas Intermediate Crude oil futures for September ended up $0.23 or about 0.6% at $41.27 a barrel.

Oil prices rose on Wednesday after a surprise drop in U.S. crude inventories, but demand concerns amid record increases in Covid-19 infections in some USA states capped gains.

Oil prices posted gains once again on Wednesday on the back of bullish data from the EIA, but analysts are warning that plenty of downside risks remain.

That leaves Brent on track for a fourth month of gains, while US crude is heading for a third consecutive month of increases, as the contracts have recovered from the depths reached in April when much of the world was in lockdown.

Total crude stocks fell nearly 11 million barrels last week, the largest one-week decline since 2019, the latest data from the U.S. Energy Information Administration (EIA) shows.

Last week, crude imports from all sources fell to just 5.1 million barrels per day (bpd), the second slowest rate for 28 years.

Bjornar Tonhaugen, head of oil markets at Oslo-based Rystad Energy, said traders will next week closely monitor oil output increases by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

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Weaker refining margins around the world, lower Chinese oil demand and high crude inventories are putting further pressure on oil prices, Lohiya said.

"The recent resurgence of the coronavirus is an ominous sign that the upside is limited in the immediate future", Tamas Varga of oil brokerage PVM said.

"The expectation is that the OPEC cuts are going to lead to bigger draws in the United States and this could be the beginning of it", said Phil Flynn, senior analyst at Price Futures Group in Chicago.

The pandemic is keeping alive concerns about falling fuel demand causing an oversupplied market as record numbers of coronavirus infections are reported globally, including in the United States, the world's biggest consumer of oil.

Attempts to provide relief amid the outbreak were in disarray after US Republicans on Tuesday disagreed over their own plan for providing US$1 trillion in new coronavirus aid.

Oil prices rose on Friday and were on track for monthly gains, boosted by a weaker dollar in the face of continuing concerns over the recovery of the USA economy as the coronavirus ravages the world's biggest economy and oil consumer.

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