Oil prices up on 7.2 million barrel draw of US crude stocks
Oil prices rose to near eight-week highs on Wednesday after data from the US Energy Information Administration showed a significant drop in US crude stocks, buoying hopes that the oversupplied crude market was showing signs of balancing.
Brent crude futures ended the day 77 cents up, to $50.97/barrel and US WTI futures were up 86 cents to $48.75/barrel.
US crude stocks fell last week by 7.2 million barrels last week on increased US exports, a marginal decline in US output, higher refinery output and dropping imports. Gasoline stocks and distillate inventories were also lower, according to the EIA.
Analysts had anticipated at drop in crude inventories by 2.6 million barrels. This is the fourth consecutive week stocks fell.
On Monday, Saudi Arabia’s Oil Minister Khalid al-Falih said the kingdom will cut back its crude exports by almost 1 million barrels per day (b/d) to 6.6 million b/d in August.
“Today’s report has strengthened the bullish sentiment already prevailing in the market, although the longevity of the move remains in doubt,” Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics in London told Reuters. “Nevertheless, the country’s crude and gasoline stockpiles remain above their five-year averages, which will cap price gains.”
Olivier Jakob, MetroMatrix managing director told Reuters the market has been tightening and refinery margins are strong. “You add geopolitical risk premium for Venezuela, and you’ve got a strong market.”
OPEC member Venezuela is facing deeper economic problems and more protests. On Wednesday, the Trump administration is expected to impose sanctions against 13 senior officials of the Venezuelan government, military and the country’s oil company PDVSA. The US government is hoping to increase pressure on President Nicolas Maduro to halt plans for a controversial new congress.
One US official warned there could be tougher, additional measures rolled out should the alleged human rights abuses, undermining of democracy and corruption continue.
Nigerian oil production fell slightly last week after Shell was forced to shut down an oil pipeline that normally moves 180,000 b/d.
Analysts are concerned that the current price rally will encourage more US production.
Reuters reports PVM oil analyst Stephen Brennock said in a note: “Relieved bulls should be careful what they wish for. Any price rebound will only embolden U.S. shale producers at a time when rumours have started to emerge that the U.S. shale boom is slowing.”
On Monday, Anadarko announced flagging oil prices have forced the large independent oil company to cut its 2017 capital budge by $300 million. The move came after Anadarko posted a larger-than-expected second quarter loss.
