EIA Report Raises Concerns About Oversupply on Top of Demand Worries

Daniel Fowler
September 13, 2020

The "climb in USA crude stocks plays into the market worries over weak demand".

Oil fell as industry data pointed to a rise in US crude stockpiles. Crude inventories saw a draw of 9.4 million barrels a week earlier. Gasoline stocks fell by 2.95 million barrels, distillates - by 1.68 million barrels.

Diminished gasoline and distillate inventories provided a bright spot, but signs that the pandemic-stricken global economy will take longer than anticipated to recover have dented USA stocks and pressured oil prices.

Brent LCOc1 ended the session down 23 cents, or 0.6%, at $39.83 a barrel while USA crude CLc1 settled up 3 cents at $37.33 a barrel.

Compounding the weakness was a second consecutive weekly decline in US stock indexes as well as USA economic indicators that suggested a long and hard recovery from the coronavirus pandemic.

Futures in NY fell toward $37 a barrel after an Energy Information Administration report showed domestic crude stockpiles increased for the first time since mid-July.

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Also dampening the market mood, the United States senate killed a Republican bill that would have provided around $300 billion (Dh1.1 trillion) in new coronavirus aid.

"The financial markets are continuing to set the tone, including on the oil market", Eugen Weinberg, energy analyst at Commerzbank Research, said in a note Friday, adding "fears about an oversupply have added to the general feeling of uncertainty".

Following Saudi Arabia, Kuwait also lowered its official selling price to Asia for October, to counter slower demand.

Oil prices were broadly stable on Thursday after losses earlier in the session, but hovered near three-month lows after data showed U.S. crude stockpiles rose last week and the U.S. Energy Information Administration (EIA) lowered its demand outlook.

As global oil inventories are sharply above average and market fundamentals are not improving, according to Morgan Stanley, some traders have reportedly started to book tankers to store millions of barrels of crude oil and refined fuels at sea again.

Increasing stockpiles are likely to be a subject at a meeting on September 17 of the market monitoring panel of the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russian Federation, a group known as OPEC+.

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