Oil prices were down early on Friday as demand concerns persist, but prices were on track for a weekly gain after hitting a five-month high as the U.S. dollar weakened and U.S. crude oil inventories fell.
Earlier this week, both benchmarks hit their highest levels since early March, just before Saudi Arabia and Russia broke up the previous OPEC+ pact and engaged in a price war for market share at a time when the pandemic was crushing global oil demand.
Prices were supported by a weakening of the U.S. dollar, which typically makes buying oil cheaper for holders of other currencies.
The price of oil was also supported on Tuesday and Wednesday by the two reports of a crude oil inventory draw in the United States.
On Tuesday, the American Petroleum Institute (API) reported a draw in crude oil inventories of 8.587 million barrels for the week ending July 31—a larger draw than analysts had expected.
Then on Wednesday, the EIA estimated that U.S. crude oil inventories had shed 7.4 million barrels during the week to July 31, sending oil prices surging later on Wednesday and into Thursday.
“However whilst we saw crude draws, the refined product market is looking less promising, with gasoline and distillate fuel oil inventories growing by 419Mbbls and 1.59MMbbls respectively,” ING strategists Warren Patterson and Wenyu Yao said, commenting on the EIA inventory report.
“It is difficult to get overly constructive towards the oil market with demand having stalled and this product overhang,” they said.
On Friday, oil prices were down in the morning as fears that rising COVID-19 cases in many parts of the world would further stall oil demand recovery.
“Brent has been unable to sustain price action above the key 45/barrel level, though it hasn’t yet reversed with conviction either, while the WTI price action looks a bit shakier back below the former range top of 42.50,” John Hardy, Head of FX Strategy at Saxo Bank, said on Friday.
By Tsvetana Paraskova for Oilprice.com
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