Oil snaps upward streak as demand outlooks dim

New York — Oil futures settled lower Wednesday as renewed demand pessimism prompted profit taking.

NYMEX June WTI settled down 57 cents at $23.99/b and ICE July Brent was down $1.25/b on the day at $29.72/b.

An overnight price rally faded ahead of the start of US trading after payroll processor ADP released advance data showing the US economy shed 20.2 million jobs in April. Official US employment data for the month is slated for release Friday.

Analysis: US crude build slows as production cuts accelerate

"Oil's nice rally is over," OANDA senior market analyst Edward Moya said. "The energy markets are not quite balanced and deeper curtailment efforts will be needed over the next few weeks."

WTI futures had settled at a one-month high $24.56/b on Tuesday, after a five-session up streak that saw the front month contract double in value.

US refined product demand slipped 410,000 b/d last week to 15.35 million b/d, US Energy Information Administration data showed Wednesday, dimming market hopes for a quick recovery after back to back weeks of rising demand.

While total product demand dipped, gasoline demand continued to show improvement as more state relaxed restrictions on non-essential travel and trade. Total gasoline supplied, a proxy for demand, jumped 800,000 b/d to 6.66 million b/d last week, EIA said, and now stands nearly 32% above its early-April nadir. However, sustained unemployment is likely to hold demand well under pre-pandemic levels as roughly 35% of gasoline used is for driving to and from work.

Still, May gasoline demand is expected to increase by 1.234 million b/d over April, Platts Analytics forecasts.

NYMEX June ULSD settled down 7.20 cents at 82.40 cents/gal and June RBOB finished 2.44 cents lower at 87.69 cents/gal.

Accelerating declines in US crude production added some backstop to prices Wednesday. Total output averaged at 11.9 million b/d during the week ended May 1, EIA said, a decline of 200,000 b/d from the week prior. After dropping by 600,000 b/d during the week ended April 3, production declines slowed to 100,000 b/d for most of April.

Outside of a one-week dip in mid-July, US crude output was last lower in February 2019.

Last week's production figure suggests that capex reductions and a sharp pull pack in drilling activity in recent weeks is now manifesting in accelerating output declines. But further supply cuts are needed to balance markets, analysts said.

"Oil bulls can't get overly excited with this report as the demand outlook is still bleak and production cuts need to be more aggressive," Moya said.