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Oil fell despite the first U.S. stockpile decline since January.
Futures in New York were down 1.4% after the Energy Information Administration said crude inventories fell by 745,000 barrels, indicating that producers recently cutting production hasn’t been enough to lift the market. The agency reported the lowest crude input by U.S. refineries since 2008, suggesting that demand recovery will take more time.
“There still is downside risk in the near term due to the demand side as the normalization of the economy could well be quite choppy and uneven throughout America,” said Bart Melek, head of commodity strategy at Toronto Dominion Bank.
The EIA also reported that supplies at the key U.S. storage hub in Cushing, Okla., fell by 3 million barrels last week. The discount on crude for June delivery relative to July, a structure known as contango, is at its tightest since March, suggesting that concerns around brimming storage capacity are easing.
The extent of crude’s rebound has been mixed. Saudi Arabia and Russia said in a joint statement they see signs of a recovery in oil demand. However, OPEC cut its demand forecast for crude in the second quarter by about 15% in a May 13 report. In Europe, Germany aims to fully reopen its borders by the middle of June, but China is sealing off cities in a province that borders North Korea amid a growing cluster of cases.
While a fresh wave of virus cases would threaten a fragile recovery, there are some bright spots emerging in the physical oil market. Chinese refiners have bought Brazil’s Lula crude at a premium to the global Brent benchmark versus a discount of about $6 a barrel a few weeks ago, while Russia’s Urals crude hit a nine-month high May 12.
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