Oil prices dropped on Thursday morning, cutting short the rally to $70 a barrel after the world’s third-largest oil importer, India, reported a fresh record of new daily coronavirus cases.
Brent prices were a hair’s breadth from reaching $70 a barrel on Wednesday, as the market was focused on the reopenings in the United States and Europe, and on the biggest draw in U.S. crude oil inventories since January this year.
On Wednesday, the Energy Information Administration reported a crude oil inventory draw of 8 million barrels for the week to April 30, a much larger draw than analyst expectations of a crude oil inventory decline of 2.19 million barrels for the period.
High U.S. oil exports for the week and the highest refinery utilization rate since March 2020 contributed to the large draw in the week to April 30.
However, the oil price rally toward $70 was cut short on Thursday, after India reported another tragic record of 412,262 new cases of COVID infections in 24 hours. The market focused on the potential slowdown in demand recovery that could come from India, and after the run to the $70 threshold failed on Wednesday, some profit-taking took place on Thursday.
“ICE Brent failed to break above US$70/bbl yesterday, with the market appearing hesitant as demand risks continue to linger. Worries over Indian oil demand are coinciding with OPEC+ gradually starting to bring supply back onto the market, along with growing Iranian supply,” ING strategists Warren Patterson and Wenyu Yao said on Thursday.
“While right now it appears as though the market should be able to absorb this additional supply, the risk is that the demand picture deteriorates further, which would lead to a looser market balance,” the analysts added.
By Tsvetana Paraskova for Oilprice.com
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