(Bloomberg) — Oil headed for its longest run on declines in over six months after the International Energy Agency said talk of an upcoming supply shortfall could be misleading.
Futures in New York declined 0.9%. OPEC and its partners could quickly deploy their stalled production spare capacity to quash oil price rallies, the IEA said in its monthly report. Demand won’t return to pre-virus levels until 2023, the agency said in a separate report.
Traders will get more supply information Wednesday with the U.S. inventory data, which could show the first drop in crude stockpiles since mid-February. The Federal Reserve policy statement is also due later, as attention on the pace of global inflation grows.
Oil’s rally this year, spurred by OPEC+ output cuts and Covid-19 vaccines, is wavering as the rebound in demand continues to be patchy. Consumption is roaring back in some regions including the U.S., although parts of Europe are struggling and the outlook for the continent’s biggest economy has been downgraded. There’s also been some recovery in the dollar, curbing crude’s gains.
The IEA report “triggered oil prices to enter into negative territory,” Kevin Solomon, an analyst at StoneX Group said. “Price action in the oil complex has been relatively directionless as broader markets are cautious on the Federal Reserve’s FOMC meeting later today.”
Attention is sharpening on the U.S. supply picture after the recent Texas freeze caused a serious of gyrations in the market. Earlier this week profit from making gasoline neared $25 a barrel following some of the biggest inventory draws on record. That’s pulled European supply to help fill the gap.
See also: Traders Snap Up Europe’s Gasoline After U.S. Stockpiles Collapse
At the same time, U.S. crude inventories have been growing in recent weeks. It’s forced the prompt timespread for WTI into contango, a bearish market structure. U.S. producers have bounced back after the cold blast last month, although some refiners are yet to fully resume normal operations, leading to excess crude supplies.
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