Crude futures dive after Trump shuts down stimulus talks

Singapore — 0305 GMT: Crude oil futures took a dive during mid-morning Asian trade Oct. 7, erasing overnight gains, as US President Donald Trump ordered a stop to discussions over a new stimulus package, while bearish data from the American Petroleum Institute took the market by surprise.

At 11.05 am Singapore time (0305 GMT), ICE Brent December crude futures were down 71 cents/b (1.66%) from the Oct. 6 settle to $41.94/b, while the NYMEX November light sweet crude contract down 82 cents/b (2.01%) at $39.85/b. Both international crude markets had risen 3.29% and 3.70% to settle at $42.65/b and $40.67/b, respectively, on Oct. 6

Amid the unfavorable demand and supply equation in the oil markets, crude oil prices have been tethered to the prospect of US fiscal relief, which is expected to inject life into an ailing US economic recovery and boost demand for oil.

However, after Trump ordered his representatives to stop negotiations with the Democrats over a stimulus package until after the election, hopes of a fiscal relief faded and a risk-off tone seized the markets.

"With the recovery in demand hitting a roadblock amid rising infections of COVID-19, the market was becoming increasingly reliant on stimulus measures to boost demand. This will likely weigh on sentiment in the short term," ANZ analysts said in an Oct. 7 note.

Meanwhile, the market was hit with yet another reminder that oil demand remains weak, after the American Petroleum Institute reported a US crude inventory build of 831,000 barrels in the week ended Oct. 2.

This large inventory build came as a shock to the market, as analysts surveyed by S&P Global Platts had expected a crude inventory draw of 2 million barrels in the same week.

Stephen Innes, chief global markets strategist at AXI, said in an Oct. 7 note: "[The crude inventory build] was not exactly what the recovery doctor ordered as the oil market was already tanking from a two week high after President Trump quashed hope for a pre-election stimulus deal."

On a more bullish note, however, the API report did highlight a 867,000-barrel and 1.033 million-barrel draw in gasoline and distillate inventories in the US, respectively, but these indications of improved downstream demand did nothing to assuage the flustered oil markets.

However, supply disruptions in Norway and the US Gulf Coast may have provided the markets with some respite, arresting the fall in crude prices.

As of Oct. 6, a labor strike in Norway had shut six Norwegian oil and gas fields, affecting 330,000 b/d of oil equivalent production, whereas in the USGC, 540,495 b/d of oil and 232.71 Mmcf/d of natural gas production had been offline due to the Category 4 Hurricane, Delta, Platts reported earlier.

The volume of oil production that is offline may grow in both regions, as Equinor's Johan Sverdrup field, the largest in the North Sea, remains under threat in Norway and as producers in the USGC continue shutting in wells and evacuating crews, Platts reported earlier.