Oil Futures Extend Lower on Crude Build, US-Iran Talks

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended lower for a second session Wednesday, pressuring the U.S. crude benchmark by more than $1 toward $61 per barrel (bbl). The losses came on a combination of an unexpected build in commercial crude stocks and gain in gasoline supplies last week on signs of progress in U.S.-Iran nuclear talks and underlining concern over likely dampened global oil demand growth amid a resurgent pandemic in key markets, including India and Brazil.

Oil futures losses picked up pace in early trade, triggered by news of extended lockdowns in India's major cities, with losses accelerating into market-on-close trade amid signs of progress in talks between the United States and Iran over reestablishing the international nuclear agreement reached during the Obama administration.

Iranian President Hassan Rouhani said Wednesday multilateral talks in Vienna addressing the country's nuclear ambitions have progressed by around 60% to 70%. A breakthrough in negotiations could see the lifting of U.S. sanctions on Iranian oil exports in the coming months, adding more crude to a market that is grappling with a delayed demand recovery.

India -- the world's third-largest oil consumer -- this week imposed strict lockdown measures in its two largest cities of New Delhi and Mumbai amid a record surge in new COVID infections. The country's hospitals reportedly lack adequate supplies of oxygen and personal protection equipment, pushing the health care system to the brink of collapse.

India's Prime Minister Narendra Modi ruled out the possibility of a second national lockdown in the face of rising unemployment and slowing economic growth. These concerns follow an outlook released in March by the Organization for Economic Cooperation and Development that raised projections for India's economic growth rate by 4.7% this year to 12.6%, making it the fastest-growing economy in the world. The latest developments put the outlook into question as the surge in COVID-19 infections has already delayed reopenings and investment flow.

Separately, Energy Information Administration released Wednesday a mixed-to-bearish inventory report, showing the first build in U.S. commercial crude inventories over the past four weeks even as demand for gasoline jumped to a fresh eight-month high 9.1 million barrels per day (bpd) and refinery run rates held near 85% -- the highest in over a year. Gasoline stocks, however, increased by 85,000 bbl to 235 million bbl, about 3% below the five-year average.

Distillate stocks unexpectedly fell by 1.1 million bbl to 142.4 million bbl and are now 2% above the five-year average. Demand for distillates declined a sizable 274,000 bpd from the previous week to below 4 million bpd at 3.854 million bpd.

At settlement, NYMEX June West Texas Intermediate contact declined $1.32 to $61.35 per bbl, while front-month ICE Brent crude for June delivery fell $1.25 to $65.32 per bbl. NYMEX May ULSD futures dropped 2.64 cents for a $1.8537-per-gallon settlement, and May RBOB futures pulled back 3.40 cents or 2.2% to $1.9834 per gallon.

After regaining some strength earlier in the session, the U.S. dollar index reversed lower in afternoon trading to finish at 91.129, suggesting investors are adopting a cautious stance on risk-taking amid surging infections in some key emerging markets.

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

Liubov Georges