Crude sinks to three-month low as fuel demand wanes

Crude in New York dropped to its lowest price since May after a surprise increase in U.S. gasoline inventories signalled fuel demand is under threat, with the Delta variant menacing the nation.

West Texas Intermediate ended its session down 1.7 per cent to settle at US$65.46 a barrel, the fifth straight daily decline. Futures briefly dipped below US$65 for the first time since May in after-hours trading. Minutes from the latest Federal Reserve meeting suggested that tapering of monthly asset purchases could begin as soon as this year, a move that could strengthen the dollar and lower the appeal of commodities priced in the currency, said Phil Flynn, senior market analyst at Price Futures Group Inc.

Domestic gasoline stockpiles inventories climbed by 696,000 barrels, the first increase in more than a month, according to Energy Information Administration data on Wednesday. Meanwhile, crude stockpiles declined by a larger-than-forecast 3.23 million barrels.

“After the EIA data came out, the market initially reacted positively, but as traders assessed the fundamentals with respect to demand risk, they changed their tune,” said Bart Melek, head of global commodity strategy at TD Securities. “The stronger dollar had an additional impact, but what it comes down to is that the market is reeling from Delta’s continued threat to consumption.”

The report followed an industry-funded American Petroleum Institute tally on Tuesday that saw a 1.16-million decline in crude inventories with supplies at the Cushing, Okla., hub dropping by 1.74 million. The group also pegged the drop in gasoline stockpiles at almost 2 million. The surprise gasoline build is “certainly weighing on the market,” said Matt Sallee, who helps manage about US$8 billion at Tortoise.

Crude surged during the first half of the year as vaccination rollouts increased confidence about the pace of economic recovery. But the rally was knocked off course in recent weeks amid signals in the U.S. and China suggesting the spread of COVID19’S Delta variant may be hurting energy demand.