Diesel and jet fuel consumption remain prime concerns: File Image/PixaBay
Hurricane Sally may be destructive, but she worked her magic on oil prices for a second session on Wednesday, causing them to jump nearly 5 percent, supported by a surprise decline in U.S. inventories that further discredits the analytical conviction of demand declining in a Covid-19 world.
Nearly 500,000 barrels per day (bpd) of offshore production has been taken offline due to the Category 2 hurricane, and this caused Brent to rise $1.69, or 4.17 percent, to $42.22 per barrel; West Texas Intermediate jumped $1.88, or 4.9 percent, to settle at $40.16 per barrel.
Analysts previously convinced that rising Covid infections were causing demand destruction were jubilant when the U.S. Energy Information Administration on Wednesday reported a stock draw of 4.4 million barrels last week to 496 million barrels, compared to expectations for a 1.3 million barrel rise.
Consumption has not returned to pre-pandemic levels
Phil Flynn, senior market analyst at Price Futures Group Inc., said, “The inventory numbers are significant – refineries seemed to jump back to activity, gasoline demand jumped back, so that’s definitely positive.
“It seems that we’re back on the track of the drawdown on supplies.”
Still, worry persisted over demand during the pandemic, and Reuters on Wednesday published a list of oil companies – including BP, and Exxon Mobil Corp – that were either trying to maintain, considering closing, or were permanently shutting certain operations.
The news agency wrote, “Consumption has not returned to pre-pandemic levels, and lower travel may be here to stay.”
Concern was also expressed on Wednesday that stockpiles of diesel and jet fuel are continuing to swell and impacting profit margins, giving refiners little incentive to run their plants harder: “If they don’t crank up the run rate, they will never burn off the crude oil overhang already in storage,” said Bob Yawger, director of the future division at Mizuho Securities USA.
As is rapidly becoming the norm, despite analytical hand-wringing the global economic recovery as well as a prospective end to the pandemic continued to show promise on Wednesday, with markets responding strongly to the U.S. Federal Reserve’s vow to keep interest rates near zero – a spur to economic activity – until at least 2023.
On the vaccine front, the White House said it will start distributing a vaccine within one day of regulatory authorization in order to meet its end-of-year dissemination goal; not to be outdone, the Centers for Disease Control said the U.S. should have enough vaccine to return to “regular life” by the third quarter of 2021.