Weekly Recap: Oil Prices Gain as U.S. Inventories Decline, Further Stimulus Looms
Global crude oil prices rallied this week as U.S. crude oil inventories declined significantly and the U.S. dollar remained weak, even as concerns about the Covid-19 pandemic affecting global oil demand persisted.
The Brent crude contract for October delivery rose 2.54% this week to US$44.40 per barrel (/bbl), while the near-month contract for WTI crude rose 2.36% to US$41.22/bbl. Both benchmarks hit a five-month high on Wednesday after the U.S. Energy Information Administration reported that U.S. crude inventories fell by 7.4 million barrels (MMbbls) to 518.6 MMbbls in the week ending July 31st. Earlier in the week, the American Petroleum Institute (API) also reported that inventories fell by 8.59 MMbbls over the same period.
Crude oil prices were also supported by the continually weakening U.S. dollar. The U.S. Dollar Index, which measures the value of the dollar against a basket of six other major international currencies has declined around 10% since its 2020 peak of 102.99 in March, and is currently trading at around 93.4.
Prices had dipped on Thursday and Friday, correcting earlier gains in the week amid concerns that the outlook for global demand remains uncertain because of the pandemic. The number of cases around the world crossed 18.9 million this week, with the U.S., Brazil, and India leading the rise in cases and fatalities.
The U.S. government’s inability to come to a consensus about another economic aid package to bolster the economy may contribute to a decline in oil prices until a deal is reached in the coming days. Further downward pressure on oil prices is expected as OPEC and its allies ease production cuts during this month, and the recovery of domestic U.S. oil production gathers strength.