Crude Futures Head for 6% Weekly Loss on Grim Demand Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Heading into the final trading day of the holiday-shortened week, nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange halted declines but both crude benchmarks remain on track for a roughly 6% loss this week as traders look to sagging demand for gasoline in the United States and weaker-than-expected crude oil imports from China, both signaling a recovery in global demand is likely to remain muted in the coming months.

In early trading, West Texas Intermediate for October delivery traded little changed at $37.30 per barrel (bbl) after plunging to a three-month spot low $36.13 earlier this week. International crude benchmark Brent November contract is trading on either side of the $40 bbl benchmark, holding above this week's nearly three-month low on the spot continuous chart at $39.31. NYMEX ULSD October futures edged higher 0.4 cents to trade near $1.0865 gallon and the front-month RBOB contract softened, trading at $1.0950 gallon, on track for a 7% decline this week.

Energy Information Administration data reported Thursday showed gasoline supplied to the U.S. market dropped to the lowest level this summer at 8.39 million barrels per day (bpd) during the week leading up to the holiday Labor Day weekend when driving demand typically surges amid family vacations. That said, the data could have been skewed in the aftermath of Hurricane Laura with many refiners still struggling to return to full operational capacity. U.S. refiners cut run rates by more than 4.5% during the reviewed week, adding to a 5% drop in the week prior. Still, demand for gasoline this summer is seen as lackluster at best, topping 9 million bpd only once.

Distillate demand was another disappointment in this week's EIA data set, which declined by 205,000 bpd or 5.2% from the previous week to 3.713 million bpd. Consumption of middle distillates, primarily diesel fuel, correlates closely with economic activity.

Overall, U.S. petroleum products supplied to the market were down 11% last week compared to the prior five-year average.

Further contributing to uncertainty, China's crude oil imports eased from a record high 13 million bpd two months ago to 11.2 million bpd in August, likely pointing to a lower consumption trend in the second largest economy. China's manufacturing and service sector activity held relatively steady above the 50-point mark indicating expansion, but there are growing concerns that Chinese refineries began working off inventories that have been building for months now. Analysts project Chinese refiners may cut oil purchases by as much as 40% in September and October.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges