Oil futures declined on Thursday after reports that China plans to release crude oil from its national reserve, in a move to ease commodity inflation.

Traders awaited official weekly data on U.S. inventories, as a large chunk of output in the Gulf of Mexico remained offline in the wake of Hurricane Ida.

“This is the first officially announced release from the strategic petroleum reserve in China ever,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. “China has been building a reserve for many years, but it is clear that they are very concerned about tight supplies and rising prices and inflation.”

The oil from the reserve is to be auctioned off in phases, Reuters reported, citing a statement from China’s National Food and Strategic Reserves administration, which didn’t specify the amount of crude it would put up for sale.

The announcement might actually “be a confirmation of oil that was previously released,” said Flynn.

“China using the strategic petroleum reserve to try to manipulate prices may work in the short run,” he said. But it may also “not work in the long run [as] trying to cool off oil demand by artificially lowering prices at a time when demand is growing is only going to encourage more demand — hence tighter supplies and in the long run, higher prices.”

West Texas Intermediate crude for October delivery
CL00,
-0.09%

CLV21,
-0.09%

fell 31 cents, or 0.5%, to $68.99 a barrel on the New York Mercantile Exchange. November Brent crude
BRN00,
-0.15%

BRNX21,
-0.15%
,
the global benchmark, was down 25 cents, or 0.3%, at $72.35 a barrel on ICE Futures Europe.

Prices had been climbing before the news on the Chinese oil reserve.

There appears to be no end to the reports of supply outages, said Carsten Fritsch, analyst at Commerzbank, in a note.

The U.S. Bureau of Safety and Environmental Enforcement late Wednesday estimated around 77% of oil and natural-gas production in the Gulf of Mexico remains shut in. Hurricane Ida, a deadly and powerful storm, made landfall on the Louisiana Gulf Coast on Aug. 29, also forcing the closure of refineries, several of which have reopened.

The Gulf closures equate to a daily production loss of 1.4 million barrels, Fritsch said, noting that it is “still taking production considerably longer to normalize again after Hurricane Ida than it did after Hurricane Katrina 16 years ago, when 40% of production had already been restored by this time.”

Meanwhile, production from the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, raised their collective crude production by 50,000 barrels a day in August, according to an S&P Global Platts survey released Thursday.

The small increase came despite the group deciding early this month to continue boosting output by 400,000 barrels a day in a bid to eventually erase the production curbs put in place last year as the pandemic hurt demand for oil.

On Wednesday, the American Petroleum Institute reported that U.S. crude supplies fell by 2.9 million barrels for the week ended Sept. 3, according to sources. The API, which released its data a day later than usual due to Monday’s Labor Day holiday, also reportedly showed an inventory decline of 6.4 million barrels for gasoline, while distillate stockpiles fell by about 3.7 million barrels.

The API also reported that crude stocks in Cushing, Okla., the delivery hub for Nymex oil futures, edged up by 1.8 million barrels for the week, sources said.

Official petroleum inventory data from the Energy Information Administration will be released at 11 a.m. Eastern Thursday. On average, the EIA is expected to show crude inventories down by 7.4 million barrels, according to a survey of analysts conducted by S&P Global Platts. The survey also calls for supply declines of 2.4 million barrels for gasoline, and 2 million barrels for distillates. 

On Nymex Thursday, October gasoline
RBV21,
-0.07%

fell 0.4% to $2.12 a gallon and October heating oil
HOV21,
-0.19%

lost 0.4% to $2.13 a gallon.

Natural-gas futures traded lower after rallying by 7.6% on Wednesday, buoyed by tight U.S. supplies and a slow recovery in Gulf production.

In Thursday dealings ahead of the EIA’s weekly update on supplies of U.S. natural gas, the October futures contract
NGV21,
-0.98%

traded at $4.878 per million British thermal units, down 0.7%.

On average, analysts forecast an increase of 33 billion cubic feet, according to a survey conducted by S&P Global Platts, which pegged the five-year average build at 65 billion cubic feet.



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