By Barani Krishnan
Investing.com - It was an unexpectedly bullish dataset on oil inventories, yet it couldn’t secure a winning day for oil bulls.
Oil prices settled down 2% or more Wednesday as the market ignored the U.S. Energy Information Administration's report of a surprise drop in crude stockpiles for last week and a larger-than-expected drawdown in gasoline to focus on Federal Reserve Chairman Jay Powell’s dour assessment of the coronavirus-struck economy.
Traders and investors in oil were also reacting belatedly to White House infectious diseases specialist Dr. Anthony Fauci, who said that U.S. states shouldn’t be rushing to reopen their economies from Covid-19 lockdowns without ticking enough boxes on the medical guidelines given to them.
June WTI, the benchmark for U.S. crude, settled down 49 cents, or 1.9%, at $25.29 per barrel.
London-traded Brent for July delivery, the global benchmark for oil, slid 79 cents, or 2.6%, to settle at $29.19.
“After oil's 17% gain last week, the rally is growing choppy this week,” said Ian Stewart at New York-based Energy Intelligence. “While the futures move up, physical surplus oil continues to flow into tanks and the path of demand recovery remains highly uncertain. New North Sea loadings, which help set the price of ICE Brent futures, still face a quiet market.”
Tamas Varga of PVM Oil said the cautions on the economy and public health were also weighing on crude investors and traders.
“The predicted and predictable demand growth is not set in stone: If the second wave of the coronavirus spreads globally again, stock markets will drag oil prices lower in the foreseeable future,” Varga said in a research note.
Stockpiles of U.S. crude saw an unexpected drop last week, the EIA said earlier on Wednesday, greatly easing worries that the United States will run out of space soon to store oil being produced within the country.
Crude inventories fell by 745,000 barrels for the week ended May 8, the EIA said. That compared with expectations for a build of about 4.15 million barrels, according to forecasts compiled by Investing.com.
That was the first decline in U.S. crude stockpiles since the end of January.
Separately, crude stockpiles also fell 3 million barrels at the Cushing, Okla. holding center for oil delivered against expiring contracts of WTI.
Cushing stockpiles were growing as fast as 5 million barrels per week in recent weeks, triggering speculation that the 76-million-barrel capacity hub would run out of space before the end of this month. Fears of a Cushing max-out were what drove WTI futures to their first ever negative pricing in late April.
Crude storage aside, U.S. oil production fell by 300,000 barrels per day last week, bringing to 1.5 million bpd the total decline since output hit a record high of 13.1 million bpd in mid-March.
The EIA also said that gasoline inventories fell by 3.5 million barrels last week, versus forecasts for a drop of 2.2 million barrels.
Distillate stockpiles, meanwhile, rose by 3.5 million barrels, compared with expectations for a build of about 2.9 million barrels.
Oil prices rose right after the release of the EIA data but enthusiasm was short-lived, with the market returning to the red on Powell’s assessment of the economy.
Powell warned of a protracted road to recovery for the economy at a time when many are concerned that reopening too quickly could trigger a second wave of Covid-19 infections. Calling the pandemic-ravaged downturn "significantly worse" than any recession since World War II, he also hit back at President Donald Trump’s counsel that the central bank cut rates to below zero, a tool the Fed chief said wasn’t proven yet to be effective.