Brent crude nudged up to $43.40 per barrel after another steady week. Interestingly, Brent crude rose as futures weakened. That indicates abundant quantities of physical oil or an increased difficulty in placing barrels.
The US WTI oil benchmark took a different direction to Brent, falling to $40.27 per barrel. That may have been triggered by the historically large drop in US second-quarter gross domestic product.
WTI retreated despite US commercial crude stocks falling by 10.61 million barrels, which is the largest draw since the 11.5 million-barrel fall reported for the end of December 2019.
This brings US inventories to a 14-week low amid rising crude oil exports that climbed to 3.21 million barrels per day (bpd). The drop in spare oil was also linked to rising consumption by refineries, which at 14.6 million bpd is the strongest since March.
Still, according to Energy Information Administration data, US crude inventories remain nearly 18 percent above the five-year average for this time of year.
The fact that US crude storage draws came amid persistently lower crude imports and higher crude exports, should have normally moved the price of US crude higher.
Instead, it moved lower, despite the weakening of the US dollar. This may be telling the market that oil prices cannot move much higher until the huge storage glut is absorbed.
As oil prices remain steady for the third month in a row, the forward futures curve has weakened, creating a situation where increased production is favored even as refining demand recovered. This is clearly reflected in the WTI futures price curve. Rising coronavirus infections in some US states continue to weigh on market sentiment.
Rising oil demand in Asia could also be capped by a second wave of the virus. Notwithstanding such concerns, gasoline demand has improved to pre-pandemic levels in many countries.
The competition between these two forces of recovery and remission in the global spread of the virus will determine where the oil price settles in the months ahead.
• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq