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Oil pared its advance Sept. 23 as stocks fell on the latest warnings from Federal Reserve officials about the economic outlook due to the coronavirus.
Prices earlier climbed after U.S. crude supplies fell for a second week in a row and distillate stockpiles retreated the most since March. However, the market wasn’t able to hang onto those gains as Fed Chairman Jerome Powell reiterated his view that there’s a long way to go for the economic rebound.
“Risk assets are on the ropes,” said Bob Yawger, head of the futures division at Mizuho Securities. “The psychological damage on [Sept. 21] is still lingering here,” he said in reference to a broad market selloff that day.
After a partial recovery this month, oil prices are now back in the same range as during the northern hemisphere’s summer, with a resurgence in coronavirus cases and fears over new lockdown measures weighing on the market. Meanwhile, the head of commodities trader Mercuria Energy Group warned that global oil markets won’t be able to absorb planned production increases by OPEC+ members as demand remains weaker than expected.
In the near term, the demand outlook still looks troubled. In Europe, the profit from turning crude into diesel slipped toward $2 a barrel earlier.
“The middle distillate slice of the barrel is a huge overhang for profit,” said John Kilduff, a partner at Again Capital. The genius of refiners is “being able to maximize profitability out of the barrel, but they’re not miracle workers.”
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