Oil prices dropped by almost 3 percent on Thursday morning and were set for the biggest percentage drop since early April, after the restart of Colonial Pipeline eased some of the concerns about gasoline shortages in the U.S. East.
This is coming amidst the general believe that oil demand is already outstripping supply and the shortfall is expected to widen even if Iran boosts exports as vaccinations against COVID-19 bolster the global economy, the International Energy Agency (IEA) has said
West Texas International (WTI) Crude was fell by 2.94 percent at $64.14 and Brent Crude was down by 2.64 percent at $67.49.
Oil prices snapped the winning streak from earlier this week when reports from both OPEC and the International Energy Agency (IEA) reiterated the view that global oil demand would rebound strongly in the second half of the year with more economies reopening and increased travel amid higher vaccination rates.
The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said on Wednesday. The agency’s bullish outlook on demand, coupled with a similar view from OPEC from Tuesday, sent oil prices to an eight-week high on Wednesday.
But on Thursday, the market focused again on the COVID crisis in India and the coronavirus strain there.
In addition, Colonial Pipeline resumed operations late on Wednesday, the operator of America’s main fuel pipeline said. Colonial warned that a full return to normal deliveries after a ransomware attack forced a total shutdown on Friday would take a few more days, Yet, the gradual restart eased some of the concerns that the U.S. East Coast would suffer from fuel shortages beyond this weekend.
On Thursday, the U.S. dollar also played a part in falling oil prices as the greenback strengthened, making crude buying more expensive for holders of other currencies.
Concerns about inflation added to the bearish note on the markets early on Thursday.
“Crude futures were sliding early Thursday in Asia as the broader financial markets languished in a risk-off mode after the US on Wednesday reported strong consumer inflation for April,” Vanda Insights said in daily note.
“The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the second quarter,” the IEA said in its monthly report, citing increased pumping from OPEC+ countries.
Output from the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, the so-called OPEC+ group of producers, lagged demand by around by 150,000 barrels per day (bpd) in the second quarter, IEA said.
That shortfall is expected to widen to a 2.5 million bpd by year’s end, the Paris-based watchdog said.
OPEC+ producers have been curbing output since 2017 but have eased since imposing record high cuts last year, with more easing agreed from this month.
“The widening supply and demand gap paves the way for a further easing of OPEC+ supply cuts or even sharper stock draws,” the IEA said, noting that storage of oil had ebbed to nearly the five-year-average after soaring amid the pandemic.