Crude lower on investors' selling opportunity; overall outlook positive

0638 GMT: Crude oil futures settled lower during mid-afternoon trade in Asia Aug. 26 as investors saw selling opportunities, but analysts remain bullish as COVID-19-driven apprehensions took a back seat amid continued demand recovery and unexpected supply tightness.

At 2:38 pm Singapore time (0638 GMT), the ICE October Brent futures contract was down 15 cents/b (0.21%) from the previous close at $72.10/b while the NYMEX October light sweet crude contract was down 28 cents/b (0.41%) at $68.08/b.

"Sentiment has turned bullish after the US drug regulator granted full approval to the Pfizer Inc/BioNTech COVID-19 vaccine, stoking investor hopes that higher fuel demand will follow a potential step up in US coronavirus vaccination rates," said Avtar Sandu, senior manager commodities at Phillip Futures in an Aug. 26 note. "China's apparent success in fighting the Delta variant had boosted demand sentiment further with no cases of transmitted infections."

Data from the Energy Information Administration showed US crude inventories falling by 3 million barrels to 432.6 million barrels for the week ending Aug. 20, bringing inventory levels to roughly 6% below the five-year seasonal average.

The draw was significantly higher than the 1.6-million-barrel figure indicated by the American Petroleum Institute's weekly report, and closer to analysts' expectations of a 3.2-million-barrel draw.

Over the same period, gasoline stocks also fell by 2.2 million barrels to about 3% below the five-year seasonal average, while distillate stocks climbed 0.6 million barrels to about 8% below the five-year seasonal average.

"The fact that inventories fell at the same time as net imports into the US rose suggests Delta [variant] is having limited impact on demand. Inventories at Europe's key oil trading hub are also low, having fallen to its lowest level since March 2020 amidst supply disruptions from Russia," ANZ research analysts said in an Aug. 26 note.

The market is also expecting tighter supply following a fire on an oil platform operated by Mexican state-run oil company Pemex. The platform is located at the Gulf of Mexico Ku-Maloob-Zaap complex and the closure impacted crude oil production of 421,000 b/d, S&P Global Platts reported earlier. So far, 71,000 b/d have been put back into operation with the platform expected to fully resume production on Aug. 30, Pemex CEO Octavio Romero Oropeza said Aug. 24.

Investors will now be looking to the Jackson Hole Symposium, starting on Aug. 26, for clarity on the US Federal Reserve's position on the tapering of its asset purchase program, which will in turn impact the strength of the US dollar and movement of oil prices.