Oil prices failed to find support on Wednesday, even after U.S. government data showed an unexpected weekly decline in domestic crude supplies, along with a fall in stocks at the Cushing, Okla. storage hub.
“Any further upside [for prices] will be rather tepid from here,” said Tariq Zahir, managing member at Tyche Capital Advisors.
“As we have seen a good amount of states opening back up, demand for gasoline should easily continue to get better—especially since we are coming from such a demand destruction here in the U.S.” he told MarketWatch. “However, air travel worldwide…is a long way from coming back.”
Zahir said he wouldn’t be surprised to see COVID-19 cases increase in the weeks to come because it takes a couple of weeks for the virus to present itself. “We feel that DNA in the consumer has been badly damaged” and the economy is likely to recover “very slowly” with the amount of jobs lost.
Oil can “definitely go higher a few dollars in the next few days, but we feel it will be short lived,” he said. “With space becoming available in Cushing, and with prices going higher” recent pledges by certain countries to cut production may not see full compliance.
West Texas Intermediate crude CL.1,
The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 700,000 barrels for the week ended May 8. That marked the first weekly decline in 16 weeks and defied a forecast by analysts polled by S&P Global Platts for an average increase of 4.8 million barrels. The American Petroleum Institute on Tuesday reported a climb of 7.6 million barrels.
The EIA data also showed crude stocks at the Cushing, Okla. storage hub declined by 3 million barrels last week to 62.4 million barrels. Working storage capacity at Cushing stands at around 76 million barrels.
“One of the bigger eye opening numbers was the draw we saw in Cushing and a rather large one,” Zahir told MarketWatch. “Overall, not a total shock on our end seeing these numbers” coupled along with the announcement from Saudi Arabia that it will voluntarily cut of another one million barrels from its production starting in June, in addition to reductions under the agreement between the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.
Dwindling storage capacity in Cushing was blamed in large part for driving the expiring May WTI contract into negative territory for the first time in history last month. The COVID-19 pandemic has destroyed demand for crude, contributing to a global glut.
Total U.S. oil production fell by 300,000 barrels a day to 11.6 million barrels a day, the EIA data showed.
In a monthly report Tuesday, the EIA forecasted U.S. crude production at an average 11.7 million barrels per day this year. That would be down 500,000 barrels a day from 2019, it said.
Gasoline supply fell by 3.5 million barrels, while distillate stockpiles rose 3.5 million barrels, according to Wednesday’s EIA data. The S&P Global Platts survey had shown expectations for a supply decline of 2.5 million barrels for gasoline, while distillate stocks were forecast at 4.1 million barrels higher.
On Nymex, June gasoline RBM20,
June natural gas NGM20,
Meanwhile, in a monthly report released Wednesday, the Organization of the Petroleum Exporting Countries further cut its forecast for global oil demand in 2020, but also forecast a drop in supply as low prices take a toll on production around the world.
OPEC reduced its forecast for 2020 crude demand by 2.23 million barrels a day from its April projection. OPEC now expects oil demand to fall by 9.07 million barrels a day this year.
The head of the International Energy Agency warned demand for the commodity could remain below pre-coronavirus levels for another year, according to a Bloomberg News report Wednesday.
