Futures Movers: Oil prices drop with weekly U.S. supplies up over 4 million barrels and COVID cases on the rise

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Oil futures dropped Wednesday, with global benchmark prices at their lowest settlement since June, as U.S. government data revealed the biggest weekly climb in domestic crude stockpiles since July and the continued surge in COVID-19 cases fed expectations for lower energy demand.

Those bearish factors outweighed a near-term drop in crude output in the Gulf of Mexico as Hurricane Zeta neared landfall on the Gulf Coast.

On Wednesday, the Energy Information Administration reported that U.S. crude inventories rose by 4.3 million barrels for the week ended Oct. 23. That followed declines in each of the previous two weeks and marked the biggest weekly rise since July.

On average, analysts polled by S&P Global Platts forecast a weekly climb of 200,000 barrels, while the American Petroleum Institute on Tuesday reported an increase of nearly 4.6 million barrels.

The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by 400,000 barrels for the week, but total oil production jumped by 1.2 million barrels a day to 11.1 million barrels. Output continued its recovery from hurricane-related disruptions earlier this month.

December West Texas Intermediate crude CLZ20, -5.40%, the U.S. futures benchmark, fell $2.18, or 5.5%, to settle at $37.39 a barrel on the New York Mercantile Exchange. That was the lowest front-month contract finish since Oct. 2, according to Dow Jones Market Data.

December Brent crude BRN00, +0.12% slid $2.08, or nearly 5.1%, to $39.12 a barrel on ICE Futures Europe, marking the lowest settlement for the global benchmark since June 12.

Among the products, the EIA said gasoline supply fell by 900,000 barrels, while distillate stockpiles declined by 4.5 million barrels last week. The S&P Global Platts survey had shown expectations for supply declines of 700,000 barrels for gasoline and 2.5 million barrels for distillates.

On Nymex, November gasoline RBX0 fell 5.4% to $1.0814 a gallon, the lowest since June 1. November gasoline HOX0 lost 3.8% to $1.1142 a gallon.

Meanwhile, the threat of national lockdowns in Germany and France and a continued rise in COVID-19 cases in the U.S. underlined concerns over the demand outlook.

Equity markets were under heavy pressure Wednesday on fears the renewed rise in the spread of the virus would threaten the economic recovery. The risk-off sentiment contributed to losses in crude prices.

See: Coronavirus tally – Global cases of COVID-19 44 million, 1.17 million deaths and U.S. counts record 500,000 new

Also on Nymex Wednesday, the November contract for natural gas NGX20, +0.69%, which expired at the end of the day’s trading session, edged by 0.8% to $2.996 per million British thermal units. The new front-month December contract NGZ20, -1.08% settled at $3.291, down 0.6%.

Energy traders eyed the path for Hurricane Zeta in the Gulf of Mexico. As of Wednesday afternoon, it was expected to make landfall southern Louisiana later in the day.

The 2020 Atlantic hurricane season is the “most disruptive of the past 12 years,” said Sami Yahya, senior oil supply and production analyst at S&P Global Platts, in emailed commentary.

The 2008 season curtailed nearly 140,000 barrels a day of crude on an annual basis and year-to-date, while the 2020 season has curtailed a little over 110,000 barrels per day, he said. The 2020 curtailments represent around “half of the disruptions brought on by the 2005 Atlantic hurricane season that shut in a little over 220,000 b/d of crude on annual basis.”

In preparation for the storm, the Bureau of Safety and Environmental Enforcement reported that 66.6% of Gulf oil production and 44.5% of natural-gas production in the region was shut in as of Wednesday.

Barbara Kollmeyer in Madrid contributed to this report.

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