Crude stable after overnight plunge on bargain hunting

Singapore — 0349 GMT: Crude oil futures were fairly stable late morning in Asia Oct. 29 as traders took advantage of an overnight plunge in prices, following a large build in US crude inventories, to carry out some bargain hunting.

At 11:49 am Singapore time (0349 GMT), ICE Brent December crude futures were down 6 cents/b (0.15%) from the Oct. 28 settle to $39.06/b, while the NYMEX December light sweet crude contract was up 2 cents/b (0.05%) at $37.41/b.

ICE Brent and NYMEX crude futures plummeted 5.05% and 5.51% to settle at $39.12/b and $37.39/b, respectively, Oct. 28, after US Energy Information Administration data showed a large increase in crude inventories, and Germany and France announced new restrictive measures that were expected to hit oil demand.

Vandana Hari, CEO of Vanda Insights, attributed the stability in crude prices to "cautious bargain hunting" in the market, even as she said that "fundamentals for the oil complex remained overwhelmingly bearish."

Indeed, US EIA data released Oct. 28 indicated weak fundamentals in the market, as it showed that US crude inventories had climbed 4.32 million barrels to 492.43 million barrels in the week ended Oct. 23. The EIA's data release marked the first instance of the nationwide supply hang having expanded since the week ended Sept. 4, with inventories now more than 10% above the five-year average.

Hari, however, noted that the EIA data was not as bearish as headlines would suggest, emphasizing that US product inventories had fallen in the same week and were indicative of improved downstream demand.

Unlike the American Petroleum Institute data released Oct. 27, which showed a 2.252-million-barrel build in US gasoline inventories in the week ended Oct. 23, the data from the EIA showed a 892,000-barrel draw for the same week. The EIA data also showed a 4.5-million-barrel decline in distillate inventories.

Offering some additional support to the market were reports that a significant volume of crude production in the US Gulf is offline. According to data by the US Bureau of Safety and Environmental Enforcement, as of Oct. 28, 1.23 million b/d of crude output, or 66.6% of the US Gulf's crude capacity, had been shuttered and 35% of the region's platforms and rigs, or 231 facilities, had been evacuated.

Chevron, Shell, BP, BHP, Murphy Oil and Equinor confirmed that they had shutdown platforms and production ahead of Hurricane Zeta, but onshore oil refineries opted to keep running, S&P Global Platts reported on Oct. 28.

However, the support offered to the market may be transient, as Hurricane Zeta already made landfall in Louisiana late Oct. 28, and production is expected to rebound once the hurricane dissipates.

Meanwhile, the resurgence of the coronavirus pandemic continued to portend demand-side gloom after German Chancellor Angela Merkel and French President Emmanuel Macron announced that their respective countries are retreating into nationwide lockdowns.

ANZ analysts in an Oct. 29 note said: "Economic uncertainty surrounding the latest surge in coronavirus cases weighed on sentiment across commodity markets ... Germany and France had announced new measures to restrict the spread, which will no doubt affect demand for crude. The UK is starting down the same path, while Italy, Spain, Portugal and Poland reached new daily case highs."