Oil Hit With Biggest One-Day Loss in Week After US Crude Build

By Barani Krishnan

Investing.com - Oil prices fell their most in a week after the first U.S. crude build in six weeks reported by the government on Friday that corresponded with the lack of fuel demand amid the coronavirus pandemic.

New York-traded West Texas Intermediate, the key indicator for U.S. crude, settled down 86 cents, or 1.6%, at $52.27 per barrel. It was WTI’s sharpest one-day slide since last Friday when it fell 2.2%. But for the week itself, the U.S. crude contract lost about 0.2%.

London-traded Brent, the global benchmark for crude, settled down 78 cents, or 1.4%, at $56.10. 

The build in crude stockpiles coincided with President Joe Biden’s message on Thursday calling on Americans to brace for “dark days” ahead from the Covid-19, which could kill up to 500,000 people in the country by the week ended Feb. 13, raising the current death toll of 412,000.

“President’s words matter,” Phil Flynn, energy analyst at the Price Futures Group brokerage in Chicago, wrote in his Friday commentary, noting that there was no certainty either that Biden would be able to push through quickly a stimulus spending bill of nearly $2 trillion to fight the pandemic.

Stimulus spending, aimed at economic recovery, typically boosts markets, and oil had joined other commodities and stocks in rallying earlier this week on Biden’s proposal.

Yet, the problem for the Biden administration is the razor-thin majority of one held by Democrats aligned with the president in the new U.S. Senate. 

Since stimulus measures are an integral part of the U.S. budget, without a super-majority of 67 out of the 100 seats in Senate, they run into a process called “reconciliation” that can only be overridden by a minimum of 60 votes (Democrats and Republicans both have 50 seats in the Senate now, with incoming Vice President Kamala Harrris having an additional vote to break the tie). 

This reconciliation bit has led to concerns that large stimulus efforts by Biden won’t easily pass muster with the Senate, especially with Republican fiscal hawk Mitch McConnell returning as Minority Leader to make legislation in the upper chamber of Congress as trying for the Democrats as it was when he presided as Majority Leader.

On the crude inventory front, the Energy Information Administration reported a build of 4.35 million barrels for the week ended Jan. 15. It was the first stockpile increase for U.S. crude since the week to Dec. 7 and bucked market expectations for a draw of 1.17 million barrels.

Contributing to the crude build here is a huge slump in U.S. crude exports, which fell by nearly 750,000 bpd, or barrels per day. But to offset some of the slack in exports, the United States also took in less imports last week, to the measure of 194,000 bpd, the EIA data showed.

On the fuel products front, gasoline registered a draw of just over a quarter million barrels versus an expected build of 2.8 million. That came after a total build of 9 million barrels over the previous two weeks. 

For diesel-led distillates, the build was less than half a million barrels versus expectations of a rise of 1.2 million. Distillate inventories have risen 14.5 million barrels over four weeks now.

Besides the U.S., the outlook for oil was getting worrying on the international front as well, with Iran officials reporting on Friday that they were ramping up production with the end of tight policing done on the regime by the previous Trump administration’s sanctions.

Iran once sent out more than 3 million barrels per day around the world, and although its crude shipments were at a fraction of that now, it could regain its export momentum for oil very quickly. It is something to be watched carefully, given the impact Iran could have on the stage-managed output of the global oil alliance OPEC+, and the broader impact on oil prices.

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