Oil Prices Edge Lower as US Inventories Rise

Oil prices edged lower on Wednesday as a jump in US crude inventories and surging Covid-19 cases raised fears of an oversupply of oil and weak fuel demand amid rising coronavirus cases in the US and Europe.
Brent, the international benchmark for more than half of the world’s crude, slipped 1.75 per cent to trade at $40.48 per barrel at 8.59am UAE time. West Texas Intermediate, the key gauge for US oil, was down 2.17 per cent at $38.71 per barrel.
The American Petroleum Institute reported that US crude oil and gasoline stocks rose last week, with crude inventories rising by 4.6 million barrels to about 495.2 million barrels, against analysts’ expectations in a Reuters poll for a build up of 1.2 million barrels.
A resurgence of coronavirus cases globally, particularly in the US and Europe, has also hit prospects for crude demand.
“The rise in Covid infections would spark additional stay-at-home orders that curb economic growth and are negative for crude prices,” Avtar Sandu, an analyst from Singapore-based Phillip Futures, said in a note on Wednesday. “The crude market had also been surprised by the rise in the US rig count for the sixth week, coupled with the coronavirus-induced weak energy demand and additional barrels of crude out of Libya had seen prices deteriorating despite the damage expected from Hurricane Zeta.”
On Tuesday, oil prices had some support from the potential drop in US production as oil companies began shutting offshore rigs with the approach of Hurricane Zeta in the Gulf of Mexico.
Production from Libya is also expected to rise in the coming weeks after the National Oil Corporation (NOC) of Libya lifted a force majeure on oil exports from the eastern ports of Sidra and Ras Lanuf on Friday. Force majeure refers to an unforeseen event outside of a party’s control that prevents it from fulfilling its obligations under a contract.
Production from the North African country is expected to rise above 1 million barrels per day in the next four weeks following the development.
Investors are also closely watching developments in next week’s US presidential elections, according to Ehsan Khoman, head of Mena Rsearch and Strategy at MUFG Bank.
“We would caution the plain notion that Trump is bullish for oil prices and Biden is bearish. A Biden victory in fact [will] prove a short-term catalyst for oil prices even under a split House and Senate, given the unlocking of significant fiscal stimulus, alongside expected US dollar depreciation,” he said.
Saudi Arabia’s energy minister on Monday said oil markets have overcome the steepest declines in terms of demand but the Opec+ group of producers remains vigilant.
“I guess the worst part is over,” Prince Abdulaziz bin Salman said at the online India Energy Forum by CERAWeek. “We are very much vigilant. There is a big shift altogether in terms of where we are today and where we were in April and May.”

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