Oil futures: Crude resumes slide on demand fears, shrugs off record Saudi OSPs

4 Aug 2022

Quantum Commodity Intelligence - Crude oil futures were firmly caught in the downwards trend Thursday following the previous session's sharp selloff as the latest US data from the Energy Information Administration highlighted demand concerns, overshadowing the OPEC+ meeting.

Front-month October ICE Brent futures were trading at $94.01/barrel (1915 GMT), compared to the earlier high of $97.66/b and Wednesday's settle of $96.78/b. The Oct22/Nov22 spread, meanwhile, narrowed to around $1.50/b.

At the same time, September NYMEX WTI was trading at $88.42/b, versus Wednesday's settle of $90.66/b, as crude benchmarks traded at levels not seen since before Russia's invasion of Ukraine.

A contraction in gasoline demand despite lower retail prices in the US had sparked the selloff across the oil sector Wednesday, coming after a wave of bearish economic indicators from the US, Asia and Europe over the past week.

"Gasoline stockpiles gained 163,000/b. Overall, this pushed gasoline supplied, an indicator of demand in the US, down to 8.54 million bpd. This compares with levels of around 9.0-9.5 million bpd this time last year," noted ANZ commodity strategist Daniel Hynes, referencing EIA data.

Prices were briefly lifted Thursday after Aramco hiked differentials for its flagship Arab Light grade to a record of Platts Dubai/DME Oman +$9.80/b for loading next month, compared to +$9.30/b in August and the previous record +$9.35/b in May. 

Although widely expected, the increase was seen as evidence that Saudi Arabia sees no difficulty in placing September barrels.

The OPEC+ meeting was largely sidelined by the later EIA data, and while markets initially rallied after the group raised September output by just 100,000 bpd – at the low end of expectations – it also highlighted concerns over falling demand.

"The smallest supply increase in history didn't appear all that material. Still, when fused with US demand destruction implied in the inventory data, oil traders were quick off the mark to trim long and re-establish short positions," said Stephen Innes, managing partner SPI Asset Management.

However, OPEC+ also flagged the "severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions."

"OPEC doesn't have much production capacity left. They know it, we know it, and soon enough, everyone will be sure of it," said Mainstay Capital Management CEO David Kudla.

In other news, reports that the Caspian Pipeline Consortium (CPC), which takes Kazakh crude to the Russian Black Sea port of Novorossiisk, said that supplies were significantly down without providing details.