(Bloomberg) -- Oil headed for its first back-to-back weekly losses since April’s price rout as swelling U.S. stockpiles added to signs that the global energy demand recovery will take longer than previously anticipated.
Futures in New York were steady near $37 a barrel and are down around 6% this week. U.S. crude inventories rose for the first time in seven weeks and stockpiles at the storage hub at Cushing reached the highest since May, according to Energy Information Administration data. Drops in gasoline and distillate supplies provided some grounds for optimism, however.
The U.S. crude benchmark has fallen around 13% this month as the end of the U.S. summer driving season, a stalling Asian demand recovery and evidence the virus is making a comeback in Europe all weighed on sentiment. A retreat in global stocks has also put more downward pressure on energy markets.
The demand outlook is weakening as the OPEC+ alliance gradually adds more barrels to the market, leading to widening contangoes and the possible return of floating-storage plays. Saudi Aramco (SE:2222) slashed oil prices to Asia at the start of the week, while S&P Global Platts became the latest market forecaster to chime in with a gloomy prediction, saying oil consumption is unlikely to get back to 2019 levels before 2022.
“This week’s sell-off started when Aramco cut oil prices, and I think they were left with little choice but to cut as much as they did, given refining margins are still very weak.” said Warren Patterson, head of commodities strategy at ING Bank NV. It will be interesting to see what OPEC+ has to say about the price slump at it next meeting next week, he said.
Brent’s six-month timespread was $2.95 a barrel in contango -- where prompt prices are cheaper than later-dated ones -- compared with $1.97 at the end of August. The change in the market structure shows growing concern over a glut.
While oil demand from China is expected to be sluggish for the next couple of months, a plan to boost its strategic crude reserves as part of its next five-year plan starting in 2021 could eventually buoy the market. Rush-hour traffic jams are also returning to Europe and Asia as workers make their way to offices in their cars and children start school.
U.S. crude inventories rose by 2 million barrels to 500.4 million in the week through Sept. 4, the EIA data showed. Stockpiles at Cushing increased by 1.8 million barrels to 54.4 million, while gasoline supplies fell by 2.9 million barrels. American crude production rose by 300,000 barrels.
“Oil demand growth is now slowing and we expect the plateau to last into the first quarter of 2021 until Covid-19 is contained and a vaccine is found,” said Victor Shum, vice president of energy consulting at IHS Markit. “Demand will then take off in the second half of 2021.”
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