Oil futures ended lower Thursday, pressured by reports that China plans a release from its crude-oil reserve, in a move to ease commodity inflation.
A slow post-hurricane recovery in Gulf of Mexico energy output, however, raised expectations of larger drawdowns for U.S. petroleum supplies in the coming weeks, as the most recent data revealed a drop of more than 7 million barrels in gasoline inventories.
There is a chance that the announcement by China was “backward looking” — meaning that the secretive nation may have already released oil from its petroleum reserve — so there may not be any “new” oil on the market, said Phil Flynn, senior market analyst at The Price Futures Group.
China plans to auction off oil from its reserve in phases, Reuters reported, citing a statement from China’s National Food and Strategic Reserves administration, which didn’t specify the amount of crude it would put up for sale.
The news caused some confusion, and “slowed the momentum” in the market, Flynn told MarketWatch.
West Texas Intermediate crude for October delivery
the global benchmark, declined by $1.15, or 1.6%, at $71.45 a barrel on ICE Futures Europe.
“This is the first officially announced release from the strategic petroleum reserve in China ever,” said Flynn. “China has been building a reserve for many years, but it is clear that they are very concerned about tight supplies and rising prices and inflation.”
“China using the strategic petroleum reserve to try to manipulate prices may work in the short run,” he said. It may also “not work in the long run [as] trying to cool off oil demand by artificially lowering prices at a time when demand is growing is only going to encourage more demand — hence tighter supplies and in the long run, higher prices.”
Production issues in the Gulf of Mexico are still significant, and the market has already seen a much bigger-than-expected drawdown in gasoline supplies so “that’s going to keep the market supported,” said Flynn.
Meanwhile, there appears to be no end to the reports of supply outages, said Carsten Fritsch, analyst at Commerzbank, in a note.
The U.S. Bureau of Safety and Environmental Enforcement late Thursday estimated 76.48% of oil and 77.25% natural-gas production in the Gulf of Mexico remains shut in. Hurricane Ida, a deadly and powerful storm, made landfall on the Louisiana Gulf Coast on Aug. 29, also forcing the closure of refineries, several of which have reopened.
The Gulf closures equate to a daily production loss of 1.4 million barrels, Fritsch said, noting that it is “still taking production considerably longer to normalize again after Hurricane Ida than it did after Hurricane Katrina 16 years ago, when 40% of production had already been restored by this time.”
Meanwhile, production from the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, raised their collective crude production by 50,000 barrels a day in August, according to an S&P Global Platts survey released Thursday.
The small increase came despite the group deciding early this month to continue boosting output by 400,000 barrels a day in a bid to eventually erase the production curbs put in place last year as the pandemic hurt demand for oil.
On Thursday, the Energy Information Administration reported that U.S. crude inventories fell by 1.5 million barrels for the week ended Sept. 3.
That was a “modest draw” in a week where the data have been “massively mottled by Hurricane Ida,” said Matt Smith, lead oil analyst, Americas, at Kpler.
The decline came in well below the average decrease of 7.4 million barrels expected by analysts polled by S&P Global Platts forecast. The American Petroleum Institute on Wednesday reported a 2.9 million-barrel decrease. Weekly supply data were released a day later than usual due to Monday’s Labor Day holiday.
The EIA also reported weekly inventory declines of 7.2 million barrels for gasoline and 3.1 million barrels for distillates. The S&P Global Platts survey had forecast supply decreases of 2.4 million barrels for gasoline and 2 million barrels for distillates.
Crude stocks at the Cushing, Okla., storage hub edged up by 1.9 million barrels for the week, the EIA reported.
Natural-gas futures finished higher after rallying by 7.6% on Wednesday, buoyed by tight U.S. supplies and a slow recovery in Gulf production.
The October futures contract
settled at $5.031 per million British thermal units, up 2.4% to mark another finish at the highest since February 2014, according to Dow Jones Market Data.
The EIA on Thursday reported that domestic supplies of natural gas edged up by 52 billion cubic feet for the week ended Sept. 3.
That was more than the average increase of 33 billion cubic feet forecast by analysts polled by S&P Global Platts, though below the five-year average build of 65 billion cubic feet.