Oil Futures Plummet on Bearish API Data, Europe's Lockdowns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange fell sharply in pre-inventory trade Wednesday as investors reacted to overnight reports suggesting Germany and France, eurozone's two largest economies, might go into nationwide lockdowns as soon as this week and preliminary data from the American Petroleum Institute showed U.S. crude and gasoline supplies unexpectedly increased during the week-ended Oct. 23, pointing to flagging domestic demand.

The December West Texas Intermediate futures dropped more than 4.5% to trade below $38 per barrel (bbl) and front-month Brent crude nosedived more than $1.50 to $39.60 bbl after reports emerged French President Emmanuel Macron and German Chancellor Angela Merkel are mulling monthlong lockdowns for eurozone's two largest economies.

Coronavirus infections have seen a record surge across the European Union this month, prompting stricter quarantine restrictions and reclosure of businesses across the 19-nation economic bloc. Eurozone's consumer confidence nosedived to a negative double-digit reading and service sectors in both Germany and France were in contraction.

With the worst-case scenario of a nationwide lockdown looming, the French Minister of the Economy and Finance said Tuesday the country's gross domestic product will fall back into contraction in the fourth quarter, reversing the green shots for the nascent recovery made in the third quarter.

In reaction, European stocks plummeted to their mid-June lows on Wednesday, with Germany's DAX Index falling 2.2% and France's CAC 40 down 2.5%, dragging major indexes on Wall Street lower. Dow Jones Industrials positioned for a 400-point drop after registering a better than 200-point decline prior session and contracts tied to S&P 500 suggest a sharply lower open.

As investors fled risker assets, the U.S. dollar surged 0.54% in index trade against a basket of six foreign currencies to trade near 93.420, with the stronger dollar further weighing on the WTI contract.

The U.S. crude benchmark was also pressured API data released late Tuesday showing commercial crude oil supplies in the United States jumped 4.577 million bbl last week, far exceeding expectations for a 900,000 bbl increase. Gasoline stockpiles rose 2.252 million bbl from the previous week while analyst forecasted a 2 million bbl draw. Distillate fuel inventories declined a more than expected 5.333 million bbl on the week. Traders now wait for official inventory data from the U.S. Energy Information Administration due out 10:30 a.m. ET.

In early trading, the NYMEX December WTI contract traded near $37.70 bbl. ICE December Brent fell to $39.52 bbl, with January Brent at a 43 cents premium to the expiring December contract. NYMEX November ULSD futures dropped back 3.5 cents to near $1.1225 gallon, with December ULSD trading with a fractional premium to the November contract ahead of expiration Friday afternoon. November RBOB futures dropped 4.7 cents to $1.0965 gallon with December futures at 1.5 cents ahead of the November contract's expiration Friday afternoon.

The selloff comes despite shut-in production in the Gulf of Mexico, where offshore operators shut-in more than 900,000 barrels per day (bpd) or 49% of output as of Tuesday ahead of Tropical Storm Zeta. DTN Weather forecast Zeta to strengthen into a Category 1 hurricane when it makes landfall along the Louisiana coastline later Wednesday, bringing potentially dangerous surge and flooding to the region.

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

Liubov Georges