Oil Rally Fizzles Despite Blowout U.S. Crude Exports 

(updates with settlement prices)

By Barani Krishnan

Investing.com - Oil prices fell after hitting their highest in eight weeks on Wednesday as data showing a record surge in U.S. crude exports and sharply lower petroleum inventories for last week were offset by COVID outbreaks outside the United States.

A four-day rally in crude prices was broken amid reports that multiple states in India will go into "complete lockdown" in coming days as a second wave of COVID infections continues to paralyze the world's second-most populous country and third-largest oil consumer.

India worries aside, energy traders were also impacted by concerns across financial markets that policymakers might be forced into committing to a faster-than-expected hike in U.S. interest rates to keep pace with price pressures from an economy rebounding rapidly from the pandemic.

The dollar’s surge to a two-week high also put a lid of gains of commodities priced in the U.S. currency, which included oil. 

“A stronger U.S. dollar and the prospect of higher interest rates is not a good combination,” OANDA analyst Sophie Griffiths noted in a comment on commodity markets, adding that India “will remain on the oil market's radar.”

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down 6 cents, or 0.1%, at $65.63 per barrel. It earlier hit an eight-week high of $66.75.

London-traded Brent, the global benchmark for crude, closed up 8 cents at $68.96. It hit an eight week high of $69.94 earlier.

U.S. crude exports hit a record high of 4.1 million barrels per day last week in a breakout above the previous week’s 2.5 million bpd, the Energy Information Administration said in its weekly petroleum supply-demand dataset released Wednesday. 

Crude imports, meanwhile, fell 1.2 million bpd to reach 5.5 million bpd last week.

The combination of these led to a near 8 million-barrel drawdown in crude inventories, the EIA said, compared with analysts' expectations for a draw of 2.3 million barrels.

Distillate stockpiles, which include diesel and heating oil, also fell last week, to 2.896 million barrels versus forecasts for a draw of 1.12 million.

Gasoline inventories were the only notable bearish number in the EIA dataset, rising by 737,000 barrels last week, versus expectations for a draw of 652,000 barrels.

Production of crude itself, meanwhile, remained unchanged at 10.9 million barrels per day as the Permian basin, the largest oilfield in the United States, appears unable, at least for now, to catch up with the demand seen for U.S. crude exports.

Nearly half of all oil pipelines from the Permian, the biggest U.S. oilfield, are expected to be empty by the end of the year, Reuters reported last month.

The basin is about 250 miles wide and 300 miles long, spanning parts of west Texas and southeastern New Mexico and includes the highly-productive Delaware and Midland sub-basins. The one-time prolific Permian is operating less than half of the oil-drilling rigs it ran a year ago, data shows.

The U.S. oil rig count, a measure of future production, stood at 343 last week versus a mid-August low of 172.

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