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Crude oil futures stable on US stocks draw; COVID-19 cases

Singapore — 0244 GMT: Crude oil futures were rangebound during mid-morning trade in Asia Aug. 6 as the continued spread of COVID-19 worldwide weakened sentiment, overturning some of the gains from the overnight rally which was spurred by the larger-than-expected drawdown in US commercial crude inventories.

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At 10:44 am Singapore time (0244 GMT), the ICE Brent October crude futures was up 9 cents/b (0.2%) from the Aug. 5 settle at $45.28/b, while the NYMEX September light sweet crude contract was down by 1 cent/b (0.02%) at $42.18/b.

"Oil prices rose to their highest since early March on Wednesday after a large decline in US crude inventories and the US dollar weakened, but mounting COVID-19 infections had market participants worried about the demand outlook," a UOB analyst said in an Aug. 6 note.

US commercial crude inventories fell 7.37 million barrels to 518.6 million barrels for the week ended July 31, and narrowed the surplus to the five-year average to about 16%, US Energy Information Administration data released Aug. 5 showed.

This was significantly higher than the market's consensus of a 3.35 million barrels decline, but slightly below the American Petroleum Institute's expectations of an 8.6 million-barrel draw released on Aug. 4.

Nonetheless, it marked the second week in a row that US inventory stockpiles fell, indicating a clear downtrend after the 10.61 million-barrel decline the previous week, and helped to push the Brent marker past $46/b during the US trading session.

However, gasoline stocks rose for a second consecutive week, climbing 420,000 barrels to 247.81 million barrels, while nationwide distillate inventories were also up 1.59 million barrels at 179.98 million barrels. Total motor gasoline supplied, a proxy for demand, was also down 190,000 b/d on the week at 8.62 million b/d, leaving it nearly 11% behind year-ago levels.

This provides "warning signs that the recovery in demand remains fragile, and comes as the US driving season, the world's biggest seasonal demand period comes to an end," ANZ analysts said in a note Aug. 6.

Meanwhile, the continued downtrend in the US dollar had helped to support investor appetite in the broader commodities sector and crude prices, given the strong inverse correlation between the US dollar and crude prices.

At 10:44 am (0244 GMT), the US dollar index stood at 92.8, down 0.06% from 92.82 at the close.

However, the continued spread of COVID-19 worldwide remains the key drag on market sentiment and recovery in oil demand. Global COVID-19 cases stand at 18,727, 700, while total deaths had exceeded the 700,000 mark, latest data from John Hopkins University showed. While the number of daily infections globally has eased, it remains high with a confirmed 257,911 cases on Aug. 4.

"The recent surge in virus cases and the reimposition of some virus control measures will moderately slow the economic recovery in the near term, but expect the recovery to get back on track in September, assuming virus developments don't prompt the reimposition of widespread lockdown," Stephen Innes, chief global markets analyst at AxiCorp, said in a note Aug. 6.

"But ultimately, traders will continue to train their eyes on the ultimate vaccine prize," he added.