Oil fall further amid rising stockpiles and weakening demand

Oil prices fell for a second day on Friday, as a surprise rise in U.S. stockpiles hit sentiment already undermined with the coronavirus pandemic continuing to erode demand for fuels.

Brent crude was down 15 cents, or 0.4%, at $39.91 a barrel by 0639 GMT, after falling nearly 2% on Thursday, while US crude dropped 7 cents, or 0.2%, to $37.23 a barrel, having fallen 2% in the previous session.

Both major benchmarks are down more than 6% for the week and headed for a second week of declines, as hopes dim for a steady recovery in fuel demand amid signs of second-wave coronavirus outbreaks.

In the United States, stockpiles rose last week, against expectations, as refineries slowly returned to operations after production sites were shut down due to storms in the Gulf of Mexico and wider region.

"The inventory data will already add to frazzled nerves of oil speculators, confronted by a widening contango in the Brent futures curve and concerns about global consumption," said Jeffrey Halley, senior market analyst at OANDA. 

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US crude inventories rose 2.0 million barrels, compared with forecasts for a 1.3 million-barrel decrease in a Reuters poll.

In a further bearish sign, traders were starting to book tankers again to store crude oil and diesel, amid a stalled economic recovery as the COVID-19 pandemic continues unabated.

Onshore storage remains near capacity as supplies continue to outpace demand, so the use of so-called floating storage is back in vogue as cheap financing costs and the spread between contracts for delivery now and later months makes it favourable for traders to hold oil for later sale.

Increasing stockpiles are likely to be a subject at a meeting on Sept. 17 of the market monitoring panel of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+.

The grouping has been withholding supply to reduce stockpiles but analysts say the meeting is likely to focus on compliance among members, rather than seek deeper cuts.

Reuters