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Crude futures fall as US gasoline stock build overshadows crude drawdown

Singapore — 0241 GMT: Crude futures dipped during mid-morning Asian trade Oct. 22 as data from the Energy Information Association indicated that the US' downstream demand remains weak and on persistent concerns over the the ramp-up in Libyan oil production.

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At 10.41 am Singapore time (0241 GMT), ICE Brent December crude futures were down 21 cents/b (0.5%) from the Oct. 21 settle to $41.52/b, while the NYMEX December light sweet crude contract was down 25 cents/b (0.62%) at $39.78/b. Both international crude markets had plunged 3.31% and 4.00% to settle at $41.73/b and $40.03/b, respectively, on Oct. 21.

Market analysts attributed the falling prices to worse-than-expected Oct. 21 data from the EIA, with a 1.9 million-barrel climb in US gasoline inventories in the week ended Oct. 16 grabbing headlines. According to the EIA, US gasoline stocks stand at 227.02 million barrels, 1.6% above the five-year average.

In contrast, the American Petroleum Institute had reported on Oct. 20 a 1.6 million-barrel draw in gasoline inventories for the week ended Oct. 16, in line with analysts' forecasts in a poll by S&P Global Platts.

Furthermore, EIA's proxy for demand -- total refined product supplied -- dropped 1.36 million b/d to 18.11 million b/d, driven by lowered demand across all product categories.

Total gasoline demand fell 290,000 b/d on the week to 8.29 million b/d, the lowest since the week ended June 12, while distillate demand shrank 590,000 b/d to 3.59 million b/d, a five-week low.

"The most devastating read for oil prices was that gasoline consumption is weakening, which then fuses with the sum of all fears that COVID-19 is again starting to impact consumer behavior at the pump negatively," Stephen Innes, chief market strategist at AXI, said in an Oct. 22 note.

At 10.41 am Singapore time, the NYMEX November RBOB contract was trading 0.72 cents/gal (0.63%) lower than the Oct. 21 settle at $1.1331/gal and November ULSD contract was down by 0.68 cents/gal (0.59%) at $1.1335/gal.

Meanwhile, the EIA's report of a 1 million-barrel fall in US commercial crude inventories to 488.11 million barrels did little to assuage the markets, as the draw did not necessarily indicate improved fundamentals and could instead be attributed to lingering effects of Hurricane Delta, which had shuttered almost 92% of the US Gulf Coast's offshore production.

The drawdown in crude inventories also fell short of analyst expectations, who had forecast a weekly decline of 1.9 million barrels.

Edward Moya, senior market analyst at OANDA, surmised in an Oct. 22 note: "A somewhat bullish EIA crude oil inventory report couldn't help oil prices at all."

Meanwhile, supply side concerns persisted after Platts reported on Oct. 20 that the 70,000 b/d Abu Abttifel oil field in Libya had resumed production and that output at the Sharara oil field, the country's largest, had climbed to 160,000 b/d since it restarted production on Oct. 11.

ANZ said in an Oct. 22 note: "The oil market is also having to contend with rising supply. Libya's crude output will rise to 560,000 b/d by the end of the month and reach 1 million b/d by year-end, according to [Libyan] deputy premier [Ahmed Maiteeq]."

The rapid recovery in Libyan production raises concerns of a supply glut, especially considering that demand is subdued amid the coronavirus pandemic, and that OPEC+ has made no definite comments yet over whether the alliance will proceed with the 2 million b/d relaxation in production cuts scheduled for 2021 onwards.