New York August 4 2022: Crude oil futures fell to a five-month low and hit pre-Ukraine war levels Aug. 3 as a surprise build in US crude supply overshadowed a modest production quota increase by OPEC and its allies.
The September NYMEX WTI settled down $3.76 at $90.66/b and the October ICE Brent declined $3.76 to $96.78/b.
US commercial crude stocks climbed 4.5 million barrels in the week ended July 29 to about 426.6 million barrels, US Energy Information Administration data showed Aug. 3. The build left stocks 6.7% behind the five-year average, compared with 7.7%, the week prior.
American Petroleum Institute data released late Aug. 2 showed a 2.17-million-barrel build in US crude supply in the week to July 29, while analysts surveyed by S&P Global Commodity Insights Aug. 1 had expected a 1.7-million-barrel draw over the period.
Prompt-dated crude futures reached their lowest level since Russia’s invasion of Ukraine Feb. 24 created widespread disruptions in global supply networks and sent prices soaring.
Front-month WTI was last lower Feb. 10, while the prompt ICE Brent contract was last cheaper Feb. 21.
“The weekly EIA crude oil inventory was very bearish,” OANDA senior market analyst Ed Moya said in a note. “The demand outlook might be much worse than everyone was thinking as US gasoline demand fell 7.1%, despite lower prices and this still being peak summer vacationing time.”
Nationwide gasoline stockpiles climbed 160,000 barrels to 225.29 million barrels, the EIA said, as implied demand fell nearly 11% behind the five-year average for this time of year.
The September NYMEX RBOB settled 14.45 cents lower at $2.9122/gal, the lowest since Feb. 28, while the September ultra low sulfur diesel climbed 3.44 cents to $3.4148/gal.
The EIA inventory report overshadowed news that the OPEC+ alliance agreed to a modest 100,000 b/d increase in production quotas for September.
The quota increase was the smallest in OPEC+ history and provided the market confidence to rally early in the session, said TD Securities analyst Bart Melek. But slowing US and Chinese energy demand is likely to weaken the fundamentals that could lead prices to trend lower over the near term, Melek said.
Heightened US-China tensions following House Speaker Nancy Pelosi’s Aug. 2 visit to Taiwan added to market uncertainty. Beijing has strongly condemned the visit and said it would carry out a series of military drills near Taiwan over the coming days.
The potential threat of military action from mainland China has underscored already volatile supply chains and any economic repercussions of an escalation of tensions between the US and China.
“The market is looking for the net impact of the Taiwan situation,” Ron Smith, senior oil and gas analyst at BCS Global, said Aug. 3. “There might be economic repercussions in a time when supply chains are already fragile. So, the [crude oil] market might see the impact of heightened tensions.”
