The data was relatively good but it came a little late for a market that had gotten too far ahead of itself.
Crude prices settled down as much 4% on Wednesday, giving back a little of their mammoth gain of more than 100% over the past week, after traders squared off bullish data from the U.S. Energy Information Administration with concerns that the coronavirus pandemic was still weighing heavily on energy demand.
“The road to recovery is a long and painful one for oil,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “Any attempt to short-circuit the process will only lead to people shorting the rally.”
Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C., had a similar view.
“At this point, while there is still upside in WTI spreads in the very front end of the curve, the risk/reward of even being long … is clearly skewed to the downside from here as the news out of Covid-19 has a lot of negative risks,” Shelton said.
“It’s been a good run on playing the expensive WTI/cheap WTI accordion that was driven by too much tourist money in ETFs. That’s over now and the picture from here on oil looks less clear to me.”
New York-traded West Texas Intermediate settled down 57 cents, or 2.3%, at $23.99 per barrel. It had doubled over the past five sessions, hitting a near one-month high of $25.73 in Tuesday’s post-settlement trade.
London-traded Brent, the global benchmark for oil, fell $1.25, or 4%, to settle at $29.72. It had risen 55% in the past six sessions, hitting a three-week high of $32.18 in Tuesday’s post-settlement trade.
Wednesday’s price decline in oil came despite the EIA reporting a smaller-than-expected U.S. crude stockpile build for the week ended May 1, along with a second-straight drop in gasoline inventories.
The EIA reported that crude stockpiles rose by 4.6 million barrels last week, compared with forecasts for a 7.8 million build versus the previous week’s actual rise of 9 million.
Gasoline stockpiles fell by 3.2 million barrels, following through with the previous week’s 3.7 million decline. Analysts had expected a rise of 43,000 barrels instead.
On the bearish side, the EIA did say that distillate stockpiles rose three times more than expected last week, up 9.5 million barrels, compared with expectations for a build of about 2.9 million barrels.
But to offset that, it also reported that crude output fell to a 15-month low of 11.9 million barrels per day, the first time production has come below the 12 million bpd mark since February 2019. Just in mid-March, U.S. crude output was at a world record of 13.1 million bpd.
Even after last week’s drop, the United States remains the world’s largest crude producer. But energy companies across the country are slashing the number of actively-operating oil rigs and shutting production wells wherever they can, joining peers in OPEC and other parts of the world who are determined to cut at least 9.7 million bpd from this month, as Covid-19 wipes out between 20 million and 30 million bpd in demand.
The EIA data also indicated another positive trend: slowing crude builds at the Cushing, Okla. storage hub that takes delivery of physical oil barrels committed to expiring contracts of WTI.
Cushing saw a stockpile rise of 2 million barrels last week versus the 5-million average build in four previous weeks. Last week’s spike in Cushing builds had triggered fears that the hub might run out of space soon for oil being pumped out of the ground in the U.S. That was the catalyst for WTI prices reaching negative two weeks ago, the first time ever in the 37-year of the benchmark.
