Oil prices fell a second day on Friday, extending losses after OPEC cut its demand forecast and the International Energy Agency said the market was still over-supplied.
Brent crude was down 37 cents, or 0.6% at $60.77 a barrel, having dropped half a percent the previous session. U.S. oil was down 43 cents, or 0.7% at $57.81 a barrel, after falling by 0.8% on Thursday.
Both benchmarks closed on Wednesday at their highest levels since January 2020 after a nearly record-setting run of consecutive daily gains.
Oil prices have risen over the last few weeks as OPEC and other producers in the group known as OPEC+ cut production, while Saudi Arabia also promised unilateral reductions in output that started this month.
“OPEC production is likely to fall this month led by declines in Saudi Arabia and Libya. This should deepen the global market deficit and support prices,” said Capital Economics.
Before the declines, U.S. crude’s relative strength index was at the most overbought level since the second Iraq war, said Bob Yawger, director of energy futures at Mizuho Securities.
“There are some signs that the market is setting up for a pullback,” he said.
Oil demand around the world in 2021 will recover more slowly than earlier thought, the Organization of the Petroleum Exporting Countries (OPEC) said.
Previously, the International Energy Agency (IEA) said oil supply was still outstripping demand globally, although COVID-19 vaccines are expected to help demand recover.
U.S. crude inventories dropped unexpectedly last week, declining by more than 6 million barrels as refiners increased output to pre-pandemic levels, according to the Energy Information Administration.
Analysts in a Reuters poll had forecast a rise of nearly 1 million barrels.
Still, gasoline inventories increased more than expected, gaining by 4.3 million barrels in the last week, against forecasts of a 1.8 million rise.
Gasoline demand over the last four weeks is 10% below the same time last year.
Oil Posts 2% Gain for the Week Despite India Virus Surge
Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.
Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.
Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.
In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.
However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.
In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.
The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.
“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.
The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.
“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.
“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”
Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook
Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.
Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.
Both contracts hit the highest level since mid-March in intra-day trade.
“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.
“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.
Crude prices were also supported by a large fall in U.S. inventories.
The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.
Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.
“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.
The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.
Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.
“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.
This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.
“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.
NNPC Refineries Records N177.21B Loss Due Unproductivity For 19 Months
In 19 straight months of not processing any barrel of crude oil, the government-owned refineries in Nigeria recorded a total loss of N177.21bn, the latest data from the Nigerian National Petroleum Corporation have shown.
An analysis of data collated from NNPC’s monthly reports revealed that all the refineries did not refine crude oil from July 2019 to January 2021.
The refineries, which are located in Port Harcourt, Kaduna and Warri, have a combined installed capacity of 445,000 barrels per day but have continued to operate far below the installed capacity.
The country relies largely on importation of refined petroleum products as its refineries have remained in a state of disrepair for many years despite several reported repairs.
In 2019, Kaduna Refining and Petrochemical Company Limited only processed crude in one month (June); Port Harcourt Refining Company Limited in two months (February and March); and Warri Refining and Petrochemical Company Limited in four months (January, February, March and May).
The Kaduna refinery incurred an operating deficit of N64.84bn from July 2019 to January 2021, according to the NNPC data.
The Port Harcourt refinery lost N57.07bn in the period under review while the Warri refinery lost N55.30bn.
“The declining operational performance is attributable to ongoing revamping of the refineries, which is expected to further enhance capacity utilisation once completed,” the NNPC said in its latest monthly report.
In January 2021, 1.68 billion litres of Premium Motor Spirit (petrol) were supplied into the country through the Direct Purchase Direct Sale arrangement as against the 1.58 billion litres of PMS supplied in the month of December 2020.
Under the DSDP scheme, selected overseas refiners, trading companies and indigenous companies are allocated crude supplies in exchange for the delivery of an equal value of petrol and other refined products to the NNPC.
The Federal Executive Council approved in March the plan by the Ministry of Petroleum Resources to rehabilitate the Port Harcourt refinery with $1.5bn.
Early this month, the NNPC and Maire Tecnimont S.p.A. signed the engineering, procurement and construction contract for the rehabilitation of the refinery.
The Italy-based company said its subsidiary, Tecnimont S.p.A., had been awarded a contract by the Federal Executive Council to carry out rehabilitation works for the PHRC, a subsidiary of NNPC.
The overall contract’s value is about $1.5bn, and the project entails EPC activities for a full rehabilitation of the Port Harcourt refinery complex, aimed at restoring the complex to a minimum of 90 per cent of its nameplate capacity.
Maire Tecnimont said the project would be delivered in phases from 24 and 32 months and the final stage would be completed in 44 months from the award date.
In the first term of the President, Major General Muhammadu Buhari (retd), the NNPC had planned to rehabilitate the refineries to attain a minimum of 90 per cent capacity utilisation.
The plan was to use third-party financiers and the original refinery builders to provide the requisite funding and technical support.
However, after over one and a half years, negotiations with financiers were stalled in December 2018 due to varying positions on key commercial terms.
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