Oil plummeted and gasoline futures tumbled by the most in over two weeks after a U.S. government report showed swelling fuel stockpiles and slowing demand as the coronavirus pandemic rages.
Crude futures in New York declined as much as 3.9% on Wednesday, while gasoline futures dropped over 4%. Domestic gasoline inventories rose 1.9 million barrels last week, the biggest increase since May, while a measure of gasoline consumption slid to the lowest since late September, according to an Energy Information Administration report. The mounting fuel supplies and lackluster demand may worsen during the normally sluggish winter driving months.
“We’ve seen a resurgence in Covid-19 cases and there was an expectation that generally throughout the rest of the year that we’d see gasoline grind tighter,” said Brian Kessens, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “The resurgence in Covid-19 has put a pause in that expectation that we’d see increased demand and the build in gasoline is an indicator that we are seeing that truly play out.”
The resurgence of the coronavirus is putting a damper on an already murky demand outlook, with governments imposing or considering tighter restrictions. Milan, Italy’s financial capital, will be under night-time curfew beginning this week, while Germany’s new infections reached a record. In the U.S., Texas hospitals had a 13% increase in virus patients in the past week.
JBC Energy cut its outlook for oil-products demand this year and early 2021, saying that “the persistent lack of recovery in U.S. gasoline demand remains particularly worrisome.”
Flagging fuel demand highlights the importance of ongoing discussions over the next round of U.S. virus aid to reviving energy consumption. White House Chief of Staff Mark Meadows said the goal in talks with House Speaker Nancy Pelosi is a deal on a coronavirus relief package within the next 48 hours, though any agreement likely faces a roadblock in the Republican-controlled Senate.
“There’s concern about the growing virus caseload in a lot of places hitting demand, especially if there’s not some fiscal stimulus,” said Michael Lynch, president of Strategic Energy & Economic Research. “Global inventories are still quite high and they’re not going to come down until we get a stronger demand recovery. Now, it looks like that will be pushed further out into the future.”
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In another sign of weakness, the EIA report also showed a fifth straight weekly build at the nation’s biggest storage hub in Cushing, Oklahoma. Crude inventories there are now over 60 million barrels for the first time since May. The spread between WTI’s nearest contracts weakened to its widest contango structure in about a week, signaling concerns of oversupply.
Still, distillate stockpiles decreased 3.83 million barrels last week and crude stockpiles dropped just over 1 million barrels, the government data showed.
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— With assistance by James Thornhill
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October 21, 2020 at 05:20AM
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