Oil drops on higher inventories, weak stock markets

Both crude benchmarks are down 6% for the week

LONDON:

Oil prices fell further on Friday and were on track for a second weekly drop after US stock markets tumbled and US crude stockpiles rose unexpectedly.

Brent LCOc1 fell $0.28, or 0.7%, at $39.78 a barrel by 1210 GMT and US crude CLc1 was down $0.17, or 0.5%, to $37.13 a barrel. Both benchmarks were 6% down for the week.

“Financial markets are continuing to set the tone, including on the oil market. The renewed slide on US stock markets dragged oil prices down with it,” Commerzbank analyst Eugen Weinberg said.

The three main US stock indexes were headed for a second straight weekly decline as recent economic indicators suggest a long and difficult recovery from the pandemic.

“Stock markets dived, oil followed, and Brent lost 15% of its value in five trading sessions as money managers liquidated,” oil broker PVM’s Tamas Varga said.

Also dampening the market mood, the US Senate killed a Republican bill that would have provided around $300 billion in new coronavirus aid.

Fears about oversupply also added to the general feeling of uncertainty, Weinberg said.

In the United States, stockpiles rose last week, against expectations, as refineries slowly returned to operations after production sites were shut down due to storms in the Gulf of Mexico and the wider region.

US crude inventories rose 2 million barrels, compared with forecasts for a 1.3-million-barrel decrease in a Reuters’ poll.

In a further bearish sign, traders were starting to book tankers again to store crude oil and diesel, amid a stalled economic recovery as the Covid-19 pandemic continues.

Increasing stockpiles are likely to be a subject at a meeting on September 17 of the market monitoring panel of the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia.

The group known as OPEC+ has been withholding supply to reduce stockpiles, but analysts say the meeting is likely to focus on compliance among members, rather than to seek deeper cuts.

Following Saudi Arabia, Kuwait also lowered its official selling price to Asia for October, to counter slower demand.