Oil up on Global Demand Estimates, But U.S. Stockpiles Still Grow

By Barani Krishnan

Investing.com - Oil prices resumed their upward trajectory on Thursday as market bulls rejoiced over the latest upgrade to global demand estimates while casting aside a third straight weekly build in U.S. crude stocks.

U.S. crude stockpiles rose by 6.09 million barrels in the week to October 8, following through with the 2.35-million and 4.58-million builds in the previous two weeks, the Energy Information Administration said in its Weekly Petroleum Status Report. 

The market’s attention was instead on the upgrade to global oil consumption forecasts by the Paris-based International Energy Agency.

The IEA said it expected world demand for oil to rise to 99.6 million barrels per day in 2022, up 3.3 million bpd from its previous estimate.

A lack of natural gas, LNG and coal could keep the oil market in deficit until at least the end of 2021, the agency said, concurring with popular estimates.

The global squeeze in energy supplies has forced a shift to oil, which might increase demand for crude by 500,000 bpd, the IEA added.

Oil prices jumped on that and barely gave up ground when the U.S. inventory numbers were reported later by the Washington-based EIA.

U.S. crude’s West Texas Intermediate benchmark settled up 87 cents, or 1.1%, at $81.31 per barrel. WTI hit seven year-highs above $82 on Monday and has gained 68% this year from a combination of output cuts by the Organization of the Petroleum Exporting Countries and its allies, a 23-nation alliance known as OPEC+. 

London-traded Brent crude, the global benchmark for oil, was at $84.12 by 2:40 PM ET (18:40 GMT), up 94 cents, or 1.1%. Brent is up 62% on the year and rose to almost $85 on Monday.

“Given the prevailing market sentiment, it’s not surprising that the IEA projection got prioritized over the EIA numbers,” said John  Kilduff, founding partner at New York energy hedge fund Again Capital. “It will probably have to take a lot more builds on the U.S. front to make a dent on the market’s bull psyche.”

Higher economic activity amid a sheer drop in global coronavirus cases has helped oil consumption spike in recent weeks as more motorists hit the road and governments loosened up activity curtailed for months by the pandemic.

The higher energy usage showed up in the weekly inventory dataset released by the EIA on Thursday. 

Gasoline stockpiles fell by 1.96 million barrels last week versus forecasts for a build of 3.26 million while distillate inventories slipped by 24,000 barrels against expectations for a 396,000-barrel decline.

Despite continuous drops in product inventories, crude builds have been larger lately, probably because refining activity was lagging usual trends due to higher WTI prices now, said Kilduff.

“This might surprise some but crude refiners are also price-sensitive and WTI at seven-year highs isn't exactly where buyers want it to be,” said Kilduff, who noted that refinery runs for last week were at 86.7%, well below the 90% and above typical for this time of year.

On the flip side, Russia’s Deputy Prime Minister Alexander Novak said on Thursday that Moscow had no issues ramping its oil production to meet projected demand.

Novak's stance could be in conflict with the OPEC+ decision not to go beyond the monthly 400,000 bpd increase the group had agreed to. 

OPEC+, interestingly, has Russia as the second biggest producer after Saudi Arabia. That said, Novak has not dissented with the alliance’s joint decisions since April 2020 as oil producers worked to restore prices destroyed by the pandemic.

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