Crude edges lower as surprise build in US crude stocks deflates rally

Singapore — 0219 GMT: Crude oil futures edged lower in mid-morning trade in Asia July 22 after an unexpected build in US crude inventories derailed an overnight rally on COVID-19 vaccine hopes and a stimulus package agreement in Europe.

At 10:19 am Singapore time (0219 GMT), ICE Brent September crude futures were down 26 cents/b (0.59%) from the July 21 settle at $44.06/b, while the new front-month NYMEX September light sweet crude contract was 27 cents/b (0.64%) lower at $41.65/b.

Front-month September ICE Brent futures briefly touched a four-month high above $44.80/b during the US trading session as promising results from multiple COVID-19 vaccine trials and declining daily infection rates in the US and elsewhere renewed investor optimism.

This was further supported by a unanimous agreement among the 27 European Union member states July 21 for an unprecedented Eur750 billion emergency stimulus package aimed at offsetting the economic impact of the coronavirus and the prospects of a new trillion-dollar stimulus package by the US government, according to media reports.

"Crude oil prices gained as government stimulus packages raised hopes of a strong economic recovery. The unprecedented stimulus package the European Union leaders agreed too was also joined by regulators eyeing the potential approval of the first COVID-19 vaccine this year," ANZ analysts said in a note July 22.

However the rally lost steam after an inventory report released by the American Petroleum Institute July 21 estimated US crude oil inventories rose 7.5 million barrels in the week ending July 17, defying trader expectations of a 2 million-barrel draw, according to analyst reports.

"Oil markets do not have the luxury of looking through the rise in COVID-19 while gaining the same immediate sentiment boost from government stimulus that the forward-looking stock markets receive. When it comes to oil demand or commodities for that matter, it's all about the here and now," AxiCorp chief global markets analyst Stephen Innes said in a note July 22.

Market participants will look to the more definitive weekly US inventory report due for release by the Energy Information Administration later in the day for further cues.