Crude oil futures fall on bearish US export data, escalating coronavirus restrictions

Singapore — 0245 GMT: Crude futures fell during mid-morning Asian trade Oct. 16, extending overnight losses, as a decline in US exports and escalating coronavirus restrictions overshadowed the large draw in US crude inventories.

At 10.45 am Singapore time (0245 GMT), ICE Brent December crude futures were down 30 cents/b (0.7%) from the Oct. 15 settle to $42.86/b, while the NYMEX November light sweet crude contract was down 26 cents/b (0.63%) at $40.70 /b. Both international crude markets had dipped 0.37% and 0.19% to settle at $43.16/b and $40.96/b, respectively, on Oct. 15.

The drop in oil prices comes after the Energy Information Association released its latest data on Oct. 15, which showed that US crude exports had fallen to 2.135 million b/d in the week ended Oct.9, the lowest in 14 months.

While part of the reason for this could have been the shuttered production during Hurricane Delta, the figure nevertheless emphasized that export demand remained weak, with both market analysts and traders not expecting a recovery in the near term.

A trading source said: "Exports are tough in November, demand is weak and [arbitrage] isn't there." The trader added that he expects demand to be weak in December and January as well.

The export data casts a shadow on an otherwise bullish EIA report, which showed that in the week ended Oct. 9, US commercial crude stocks had dropped 3.82 million barrels to 489.1 million barrels, putting them just 10% above the five-year average inventory -- the lowest supply overhang since mid-May.

The EIA report, however, may have failed to make a bigger impact on the market, as it was conservative compared with the American Petroleum Association's report released on Oct. 14, which had quantified the drop in crude inventories at 5.4 million barrels the same week.

The EIA also reported a 1.63 million-barrel and 7.25 million-barrel draw in US gasoline and distillate inventories, respectively. Refined products supplied, EIA's proxy for demand, jumped 1.13 million b/d to 19.48 million b/d, indicating that fundamentals in downstream oil markets were improving.

Stephen Innes, chief market strategist at AXI, said in an Oct. 16 note: "U.S. oil and product stockpiles offered up some glimmer of hope that the fragile demand recovery is rebalancing at a better pace than expected in the world's largest consumer of oil, the US markets."

Meanwhile, the coronavirus pandemic continued to weigh down sentiment for oil, after France, Portugal and Italy all reported record high daily cases, and after the UK introduced new restrictions, including a ban on visiting others indoors in some parts of the country.

ANZ analysts said in an Oct. 16 note: "Crude oil started the session on the back foot, as investors became increasingly concerned about the economic fallout from the resurgence in coronavirus cases."

Amid the impending economic distress, OPEC Secretary General Mohammed Barkindo acknowledged that the outlook for oil looked bleak.

"We are on the course to recovery, but we have to be realistic that this recovery is not picking up pace at a rate that we earlier expected in the year," Barkindo said on Oct. 15 at the Energy Intelligence Forum.

Barkindo's statements in the forum reignited market talk that the OPEC+ alliance will extend the production cuts from 2021 instead of easing them as planned, even after UAE energy minister Suhail al-Mazrouei said on Oct. 13 that there are no such plans at the moment.

Innes said: "Barkindo suggested the 'OPEC Put' remains alive and well when replying to questions whether the market could handle another 2 million b/d if the OPEC+ further relaxes the current cuts in January as planned."