By William Watts, MarketWatch
Oil futures reversed early losses, ending higher Tuesday as traders awaited data on U.S. crude inventories.
West Texas Intermediate crude for September delivery /zigman2/quotes/211629951/delayed CL.1 -0.67% rose 69 cents, or 1.7% to finish at $41.70 a barrel on the New York Mercantile Exchange, after trading as low as $40.14. October Brent crude /zigman2/quotes/209704782/delayed UK:BRN00 -0.35% /zigman2/quotes/209704782/delayed UK:BRN00 -0.35% ended with a gain of 28 cents, or 0.6%, at $44.43 a barrel on ICE Futures Europe.
“Oil again rejected the sub-$40-a-barrel area as talk starts to circulate that we could see a significant draw down in U.S. crude oil inventory,” said Phil Flynn, analyst at Price Futures Group, in a note. “The whisper numbers are becoming louder as a historic drop in U.S. oil production, as well as a plunge in U.S. oil imports, could set the stage for another historical crude oil supply draw.”
U.S. crude inventories fell 10.6 million barrels last week, the largest drop of the year. The American Petroleum Institute, an industry trade group, is expected to release its weekly estimate of inventories late Tuesday afternoon, while the Energy Information Administration’s more closely watched data is due Wednesday morning.
Analysts surveyed by S&P Global Platts, on average, look for EIA crude inventories to show a fall of 4.1 million barrels, while gasoline stocks are forecast to decline 1.3 million barrels and distillate supplies are seen rising 100,000 barrels.
“Market calls of draws anywhere from 4 million barrels to 12 million barrels are being thrown around, and it will be interesting to see if the draw is on the massive side, will it shock the oil trade out of its recent tight trading range,” Flynn said.
Meanwhile, worries remain about overall demand as the COVID-19 pandemic continues. The global tally of confirmed cases climbed above 18.3 million on Tuesday, according to data aggregated by Johns Hopkins University, and the death toll rose to 694,406.
However, the number of new U.S. cases of COVID-19 on Monday was below 50,000 for a second day, The Wall Street Journal noted , with some of the most hard-hit states showing a slowdown in infections. Worries about the continued spread of the virus in the U.S. and elsewhere have been seen as a negative for refining margins, which could crimp demand for crude.
India serves as an illustration of the “fragile state of demand,” wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Tuesday note. A combination of higher retail prices and lockdown measures that have been extended to the end of the month have served to curtail diesel demand by around 20% year-over-year, they said.
“There remains a distinct possibility of this kind of effect proliferating elsewhere in the region, with more stringent lockdown measures having since been reimposed in parts of the Philippines and Australia, and a higher likelihood that Vietnam will also see some kind of restrictions soon,” they wrote.
The relaxation of curbs on output by OPEC and its allies, a group known as OPEC+, also continue to shadow the market, analysts said. OPEC+ pledged to cut output by 9.7 million barrels a day beginning in May, easing to 7.7 million barrels a day this month and running through the end of the year. Countries that exceeded the earlier curb are supposed to further curtail output, which means output is targeted to rise by around 1.5 million barrels a day beginning this month, though skeptics doubt that past violators of such agreements will fully comply
September natural-gas futures rose 9.20 cents, or 4.4%, to close at $2.193 per million British thermal units, for the highest close since Jan. 10. The contract jumped 16% Monday, its largest one-day rise since November 2018 in a move attributed to forecasts for hotter-than-previously-expected weather and tightening production.
September gasoline edged up 0.12 cent, or 0.1%, to $1.2143 a gallon, while September heating oil rose 1.75 cents, or 1.4%, settling at $1.2584.