By Barani Krishnan
Investing.com – Oil prices finished with a second week of losses that left the market down more than 10% over the past fortnight as higher-than-anticipated crude stockpiles rattled investors already concerned about fuel demand with the end of the peak U.S. driving season.
A sluggish day on Wall Street added to the anemic performance in oil. The S&P 500, the leading indicator of U.S. stocks, was down slightly as well for the day while showing a loss of nearly 3% on the week, after the previous week’s drop of more than 2%.
New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, settled the day up 3 cents at $37.33 per barrel. For the week though, WTI lost 6.1%, extending last week’s drop of 7.5%.
Ed Moya, an analyst at New York’s online trading platform OANDA, said WTI seemed destined to trade at around the mid-$30s for now as the crude market continued to work its way towards balance.
“Much attention is falling on the lack of American road-fuel demand, but in the short-term that could change as some companies are starting to urge more people to stop working from home,” Moya said in a note.
“The next few months will be extremely uncertain for the demand outlook as no one knows how the winter wave of the coronavirus will trigger scattered lockdowns throughout the country.”
London-traded Brent crude, the global benchmark for oil, closed the New York trading session down 23 cents, or 0.6.%, at $39.83. Brent lost 6.6% for the week, adding to the previous week’s drop of 5.3%.
This week’s slide came after the Energy Information Administration reported a weekly crude inventory build of 2 million barrels, above the 1.3-million forecast by analysts. It was the first rise in crude inventories since mid-July. In six previous weeks, the EIA had reported a total crude drawdown of more than 38 million barrels.
Aside from the weekly crude build, the EIA also reported that refinery utilization of oil fell 5% for a second straight week. That raised concerns about demand for fuel after the end of the peak U.S. summer driving season.
On the bearish side as well, the EIA raised output estimates for U.S. crude by 300,000 barrels per day to 10 million bpd, accounting for the redeployment of production platforms on the Gulf Coast that were preemptively shut during last month’s Hurricane Laura.
Oil market economics were clouded over the past four months by euphoria more than statistics attesting to business reopenings from Covid-19 lockdowns.
Tepid U.S. jobs recovery since July — despite unemployment returning to single digits — and a resurgent dollar that’s anything but good for commodities had capped crude in the low $40s.
The floor finally came off the market last week after OPEC kingpin Saudi Arabia cut the selling price of its oil, ostensibly to preserve or widen its market share. The Saudi move came weeks after OPEC’s global producer alliance called OPEC+ said it was winding back production cuts observed since May.
The return of the Dollar Index to its bullish 93-handle and a stocks rout on Wall Street completed a perfect storm for crude longs.