U.S. West Texas Intermediate and international-benchmark Brent crude oil futures overcame early weakness and an attempt to close lower for the week to post solid gains on Friday. The recovery was fueled by concerns over low supplies. However, some traders felt gains were limited by lingering worries that demand disruptions from the COVID-19 pandemic may not be over.
US Crude Finds Support from Low Supplies at Cushing, Oklahoma
U.S. crude oil at the largest U.S. commercial storage hub dropped to a three-year low the week-ending October 15, according to the Energy Information Administration (EIA), helping to underpin prices on Friday.
Crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.3 million barrels to 31.2 million barrels. That’s the lowest level since October 2018, and points to tightness in the market that may take some time to alleviate.
“It makes no economic sense to keep excess inventories at Cushing when you can sell it in the prompt month. I expect that the draws at Cushing are going to continue,” said Andrew Lipow, president of Houston-based consultancy Lipow Oil Associates.
The tightness in the market has caused futures contracts to move into backwardation, where later-dated contracts trade at a lower price than the current contract. That encourages companies to sell oil immediately rather than keep it in storage.
Traders Cautious about Possible Uptick in Global COVID Cases
Ahead of the week-end there were renewed concerns over another possible wave of COVID cases in Russia, China, Germany and the U.K. If the situation worsens, it could lead to demand destruction.
According to Reuters, prices pulled back from earlier intraday highs after German Chancellor Angela Merkel said the pandemic is not over yet. Additionally, Federal Reserve Chairman Jerome Powell said he could not rule out another COVID-19 spike this winter.
Although it was downplayed late in the week after a U.S. National Oceanic and Atmospheric Administration (NOAA) forecast called for a warmer than average winter in much of the United States, worries about coal and gas shortages in China, India and Europe, spurring some power generators to switch from gas to fuel oil and diesel should continue to be an important driver of price action over the near-term.
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This article was originally posted on FX Empire