The energy complex on Wednesday settled sharply lower. Concern about a recovery in oil demand weighed on energy prices after President Trump on Tuesday instructed Treasury Secretary Mnuchin to end stimulus talks. Crude prices remained weaker on Wednesday after weekly EIA data showed that U.S. crude oil inventories unexpectedly increased Weak demand for global air travel is negative for jet fuel and crude prices. Data from Bloomberg NEF shows airlines in the U.S., Europe, and Asia have cut 5,500 flights per day scheduled for November.
Wednesday’s European economic data was negative for energy demand and crude prices. German Aug industrial production unexpectedly fell -0.2% m/m, weaker than expectations of +1.5% m/m. Signs of strength in global crude demand is positive for oil prices after Saudi Arabia on Tuesday raised the pricing of its crude oil to its Asian customers for November delivery, the first price increase since August.
A bullish factor for crude is that Hurricane Delta has forced closures of crude oil platforms in the Gulf with about 30% of total U.S. Gulf crude output shut as of Tuesday afternoon. Accuweather said today that Hurricane Delta should make landfall late Thursday or early Friday as a category 3 hurricane between Louisiana and Mississippi. The ongoing Covid pandemic has undercut global growth and energy demand and is bearish for crude prices. Infections have risen above 36.107 million around the world, with deaths exceeding 1.055 million.
Additional crude supplies from Libya are a bearish factor for crude prices. After a blockade was partially lifted last week, Libya’s crude output as of Saturday rose to around 300,000 bpd, up from 80,000 bp at the start of last month.
Crude prices maintained their losses Wednesday after the EIA reported that U.S. crude inventories unexpectedly rose +501,000 bbl, more than expectations for a -1.0 million bbl draw. On the positive side, EIA gasoline stockpiles fell -1.4 million bbl to a 10-month low, a bigger decline than expectations of -500,000 bbl.
Wednesday’s weekly EIA data showed that (1) U.S. crude oil inventories as of Oct 2 were +12.2% above the seasonal 5-year average, (2) gasoline inventories were -0.4% below the 5-year average, and (3) distillate inventories were +21.9% above the 5-year average. U.S. crude oil production in the week ended Oct 2 was up +2.8% w/w to 11.0 million bpd and is down by -2.1 million bpd (-16.0%) from Feb’s record-high of 13.1 million bpd.
