Oil Snaps 6-Week Rally, Dashing Hopes for Quick Rebound

Commodities & Futures
© Reuters.  © Reuters.

By Barani Krishnan

Investing.com – Oil bulls’ hope for a quick rebound from “Black Thursday” hasn’t happened.

Crude futures fell 8% on the week — virtually matching the crash of the previous session and ending a six-week rally — after settling with mixed prices on Friday. 

It was a sign that the market may finally be paying attention to the record stockpiles in U.S. crude and hefty builds in fuel products like diesel that hedge funds and other bullish investors in oil had ignored for weeks.

“I think some of the CTA length that we saw enter the energy market in the last few weeks may have exited yesterday,” Scott Shelton, energy futures broker at ICAP (LON:) in Durham, North Carolina, said, referring to hedge funds.

“We could perhaps have more to sell as the size of the selloff often results in some of the slippage systems kicking in and deciding to wait a day to sell.  Should prices weaken again, I would expect to see some ‘catch up’ with regards to CTA selling.”  

New York-traded , the benchmark for U.S. crude, settled down 8 cents, or 0.2%, at $ 36.26 per barrel.  

London-traded , the global benchmark for oil, gained 18 cents to settle at $ 38.73.

For the week, WTI lost 8.3% while Brent shed 8.4%.

It was the first week of losses after six previous weeks of gains that lifted WTI as much as 300% at one point and Brent 170% from April lows. 

Thursday’s average 8% plunge on both benchmarks came amid fears of a second wave of coronavirus infections in the United States and indications from the Federal Reserve that the economy could struggle for another two years at least from the pandemic.

Adding to the concerns of oil investors were U.S. commercial{ {ecl-75|| crude oil inventories}}, which grew by 5.72 million barrels last week, according to data from the Energy Information Administration. 

“This increase now sees total U.S. commercial crude oil inventories stand at 538 million barrels, surpassing the levels seen back in early 2017, and in fact the highest level going as far back as 1982,” ING said in a research note.

Just as startling as the crude stockpiles were led by diesel. These soared by 1.6 million barrels last week, bringing inventories to nearly 53 million barrels over the past nine weeks.

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