Futures Movers: Oil prices finish lower as worries about demand resurface
Prices saw earlier gains as Saudi Arabia lifted prices and China oil imports climbed
Crude oil futures gave up earlier gains on Thursday, with downbeat comments from Federal Reserve officials on economic activity and some doubts over producer compliance with the OPEC+ output-cut agreement prompting prices to settle lower.
Prices had spent much of the session trading higher, buoyed by Saudi Arabia’s decision to lift prices to help stabilize values, while data showed China’s appetite for the commodity picked up in April compared with prior months.
“Oil is still nervous about the conjured pace of demand,” said Phil Flynn, senior market analyst at The Price Futures Group.
Three Federal Reserve district bank presidents said Thursday that they don’t expect a quick rebound in economic activity even as states ease COVID-19 lockdown measures. “I think…for the country the short-term outlook is really bleak,” Minneapolis Fed President Neel Kashkari said.
U.S. weekly jobless claims data Thursday showed more than 3 million Americans lost employment.
Also “some reports that smaller OPEC countries, like Kazakhstan, may struggle to cut output raised some fears” over compliance levels with the output-cut agreement between the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, Flynn told MarketWatch.
West Texas Intermediate crude for June delivery
on the New York Mercantile Exchange, fell 44 cents, or 1.8%, to $23.55 a barrel after trading as high as $26.74. It settled 2.3% lower on Wednesday to snap a five-session streak of gains.
Global benchmark July Brent crude
lost 26 cents, or 0.9%, at $29.46 a barrel on ICE Futures Europe, following a 4% decline in the prior session.
Oil prices, however, had spent much of Thursday’s session trading higher, before giving up those gains shortly ahead of the WTI and Brent priced settlements.
Saudi Arabia, the most influential member of the Organization of Petroleum Exporting Countries, is raising crude prices for its customers world-wide, according to Bloomberg TV.
The Saudis “had been offering steep [oil] discounts to secure market share, but an increase in price suggest the Saudis believe demand destruction has bottomed out in Europe,” said Flynn.
In other oil-related news Thursday, the U.S. looked to ease back its military presence in Saudi Arabia, with the Wall Street Journal reportingthat the U.S. is removing Patriot anti-missile systems from the kingdom and considering reductions in other military capabilities. The report said the U.S. also plans to remove dozens of military personnel that were sent to Saudi Arabia after a series of attacks on Saudi oil facilities last year, which the U.S. blamed on Iran.
“While this might be just a pullback from the post-refinery attack buildup…it also may be a message to the Saudis that their [recent price war with Russia] was not appreciated by U.S. lawmakers and leaders,” Flynn said.
“The Saudis may look like a short-term winner in the price war, but its damaged relations with the U.S. might make them a loser,” he said. “Tension been the Saudis and Iranians are still running high and a pull back from the U.S. military might give the Iranians some ideas.”
Meanwhile, China’s oil imports rose to 10.42 million barrels a day in April from 9.68 million in March, according to Reuters data. Overall imports for the world’s second-largest economy and the biggest oil importer were down 14.2% from the year-ago period. However, exports from the country grew an unexpected 3.5% from the previous year.
Traders also continued to keep on eye on crude supply levels. The EIA reported Wednesday that U.S. crude inventories rose 4.6 million barrels for the week ended May 1. The data, which excludes changes in the Strategic Petroleum Reserve, marked a 15th consecutive weekly rise, but was smaller than the average increase of 7.1 million barrels forecast by analysts polled by S&P Global Platts.
The EIA had also reported a rise of 1.7 million barrels in the SPR to 637.8 million barrels last week.
Oil is starting to flow into the SPR, “which may avert a U.S. oil storage overflow and substantially reduce the risk that oil prices in the U.S. will again crash below zero,” said Flynn. The flow of oil into the reserve was “one of the reasons that the increase in commercial crude oil inventories” was smaller than expected.
Some signs of easing tensions between China and the U.S. may have contributed to oil’s earlier gains. Bloomberg News reported on Thursday that U.S. trade negotiator Robert Lighthizer and his counterpart Liu He are scheduled to have a call to discuss progress on a phase-one trade deal between the countries that had looked in jeopardy of being quashed by President Donald Trump.
June natural gas
lost 5 cents, or 2.6%, to $1.894 per million British thermal units.
The EIA reported Thursday that domestic supplies of natural gas rose by 109 billion cubic feet for the week ended May 1. On average, analysts expected a rise of 105 billion cubic feet, according to a survey conducted by S&P Global Platts.