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Oil declined as data showing rebounding demand wasn’t enough to offset ballooning inventories.
West Texas Intermediate futures fell as much as 8% May 6, before paring losses. U.S. gasoline demand on a four-week basis rebounded at its strongest rate in government data going back to 1991, but it still remains just above its all time-low. Crude stockpiles increased by 4.59 million barrels, the smallest build in six weeks, while gasoline stocks shrank by 3.16 million barrels.
Refiners have recognized the lower demand for gasoline and configured their refineries to minimize output, Brian Kessens, a portfolio manager at Tortoise, said of the report. The inventory data “shows that a number of states are starting to open up and as they open up people are going immediately back to driving and using gasoline.”
Still, the supply glut continues to keep prices suppressed, despite the easing of lockdowns and positive inventory data. Additionally, U.S. private payrolls plunged by 20.2 million in April, the most on record, and most analysts don’t see demand rebounding to pre-virus levels for at least a year, with some questioning if that will ever happen.
“We will continue to have oversupply and slow demand for a while yet,” said Bart Melek, head of commodity strategy at Toronto Dominion Bank. “At the same time, with Cushing adding another two million barrels to inventory and the Saudi Arabian oil tanker flotilla containing 40 million barrels of crude starting to arrive in the U.S., storage may grow as a concern and force prices below $20 again.”
Despite concerns about oversupply, the discount on crude for June delivery relative to July, a structure known as contango, remains at its tightest in more than a month.
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