Oil posted its first back-to-back weekly loss since April’s rout with the end of the summer driving season and concern about OPEC’s production compliance weighing on prices.
West Texas Intermediate for October delivery on Friday rose 0.08 percent to US$37.33 a barrel, but the contract was down 6.14 percent for the week, coinciding with a retreat in US equities.
Brent crude for November delivery lost 0.57 percent to settle at US$39.83 a barrel, losing 6.63 percent for the week.
Traders are also examining data indicating the United Arab Emirates since July has been regularly exceeding its quota under a deal between the OPEC and its allies.
“Oil by-and-large has not had a mind of its own this week,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures, with investors’ focus shifting toward equities and the prospects for an economic rebound.
There are also “lingering concerns that demand will drop off because everybody’s working from home and not many people are traveling, ” he said.
The uncertainty over how much supply OPEC+ is returning to the market adds another wrench in the recovery for oil prices still reeling from the pandemic-driven blow to consumption.
While US supplies had grown tighter in past months and producers were expected to restrain production amid a weak financial backdrop, stockpiles last week rose again for the first time since mid-July.
The build in US inventories served as “a reminder that the driving season is over,” without a late surge in driving activity some might have hoped for, said Michael Lynch, president of Strategic Energy & Economic Research.
Oil options markets have also turned progressively more bearish this week. The cost of bearish put options, which help traders profit when prices slide, was the most expensive relative to bullish calls since June. That suggests options traders remain pessimistic about the market outlook.
Meanwhile, the spread for Brent futures’ nearest December contracts this week settled at its widest contango since May, boosting the profitability of storing oil at sea.
Some of the world’s biggest oil traders have chartered supertankers that could be used for floating storage or for transport, according to shipbrokers and fixtures.
The pandemic has wreaked havoc on the US shale industry. Frackers are blasting less sand into shale wells for the first time in almost three years as oil explorers adjust to lower oil demand and prices due to the COVID-19 outbreak.
“Until we’re reopened and prices get back to a profitable level, activity continues to grind lower,” providing some support for oil prices, said Rob Haworth, senior investment strategist at US Bank Wealth Management.
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