By Barani Krishnan
Investing.com - Oil ended the week little changed as a drop in stockpiles of crude and diesel countered concerns about market direction amid surging Covid-19 caseloads.
New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, settled at $40.88 per barrel, up 0.7% on the week although it was down 8 cents, or 0.2%, on the day.
London-traded Brent crude, the global benchmark for oil, was, however, down for both the day and week.
Brent settled Friday’s trade at $42.93 per barrel, down 23 cents, or 0.5%. For the week, the global crude gauge slid 8 cents, or 0.2%.
U.S. crude stockpiles tumbled 3.8 million barrels last week after rising by just over 500,000 barrels the previous week, the Energy Information Administration said Thursday.
The EIA also reported that distillates inventories plunged by 7.2 million barrels for the week ended Oct. 9 versus a slide of just 962,000 in the week to Oct. 2.
Global oil inventories, which ballooned in the second quarter as fuel demand collapsed, are currently falling at a clip of around 3 million barrels a day, Gunvor chief executive Torbjorn Tornqvist told Bloomberg in an interview published on Thursday. U.S. inventories have fallen in all but two of the last 12 weeks, and last week's declines were considerably sharper than expected.
But while the drawdowns looked good for supply-demand optics, there were also concerns they could be distorted by precautionary reactions related to the shutdowns forced by Hurricane Delta, which struck Louisiana on Monday as a Category 2 storm. Nearly 92% of all oil production in the U.S. Gulf of Mexico was shuttered by Delta. With most of those facilities having reopened since, output and stockpiles could rise again in coming weeks.
This week’s global spike in Covid-19 caseloads has also raised alarm across markets. Infections in Italy again moved near the danger zone last seen in March, while the U.K. and France imposed new movement restrictions. In the United States, new cases are up in 39 of the 50 U.S. states.
Reuters reported that the OPEC+ bloc of producers - whose technical experts met in Vienna on Thursday to discuss the state of the global oil market - fear that a fresh wave of the pandemic will hit demand and end the slow process of rebalancing that has been in progress since the summer.
The intention of the OPEC+ bloc, which includes producers such as Russia, is to start raising output again as inventories approach their historical norms. Their current deal on output restraint foresees them raising production by nearly two million barrels a day at the start of next year, on the assumption that inventories continue to fall.
Reuters noted that it's only the worst-case scenario considered by OPEC+'s experts on Thursday that supply/demand could return to a surplus. Even so, that's gloomier than any of the scenario entertained by the bloc a month earlier.
Another factor complicating the supply picture is the return of Libyan production after months of disruption from civil war. The north African country, which is an OPEC member but which isn't covered by the output restraint deal, is now producing some 500,000 barrels a day and some forecasts say it could rise to 700,000 b/d or more by year end.
— With additional reporting by Geoffrey Smith