A record drop in US crude inventories is failing to lift a market that has seen a recent rally squelched by concerns about the macroeconomic outlook.
(Bloomberg) — A record drop in US crude inventories is failing to lift a market that has seen a recent rally squelched by concerns about the macroeconomic outlook.
West Texas Intermediate halted its recent rally, settling below $80 on Wednesday. Traders said markets are partly ignoring a government report that showed a 17.05 million-barrel plunge in US crude stockpiles last week because its so-called adjustment factor — akin to a margin of error — continues to swing wildly. That’s sowing doubt about the figures’ validity and allowing oil futures to follow equity markets lower on the US debt-rating downgrade and a hot labor market report.
“These draws are undeniably huge, but generally we lose some of the seasonal momentum from here,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “The macro risk trade is starting to rear its head again, so the market is not buying crude on this inventory data, but using it as a chance to sell crude as the next few months likely bring a moderation in growth.”
Lackluster global consumption is also adding to the bearish outlook for crude. US gasoline demand fell for a fourth straight week on a rolling four-week average, despite the country being in its busy summer driving season. Meanwhile in China, the world’s largest crude importer, analysts see demand having peaked, with large amounts of supply being stockpiled rather than turned into gasoline and diesel.
Crude soared in July after the Organization of Petroleum Exporting Countries and its allies cut supplies. That has spurred calls from producers including BP Plc that the market is set to strengthen in the coming months.
Widely watched metrics in the market also are strengthening. The gap between the US oil benchmark’s two nearest contracts is near the widest backwardation since November. The spread between its two closest December contracts is above $5 a barrel in backwardation, up from about $2 five weeks ago.
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