Oil futures rose Wednesday after a drop in crude inventories at the Cushing, Oklahoma storage hub provided support to the lowest level since early 2020, surpassing pressure from the first weekly rise in US crude inventories since mid-May.
The Energy Information Administration reported on Wednesday that U.S. crude oil inventories rose 2.1 million barrels in the week ending July 16, marking the first weekly increase in nine weeks.
On average, analysts polled by S&P Global Platts predict a drop of 6.7 million barrels of crude oil, while the American Petroleum Institute reported an increase of 806,000 barrels on Tuesday.
The EIA data also showed that crude oil inventories at the Cushing, Oklahoma storage hub fell 1.4 million barrels this week to 36.7 million barrels. Stocks at the storage hub have not been this low since January 2020, EIA show date.
The market is starting to realize that the overall situation is “still very tight,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.
“We saw a big surprise surge in imports and that kept the market somewhat at bay, but if you look at the draw in Cushing, Oklahoma, we’re getting to a dangerously low level,” he said. “If we keep pulling at this rate, we’ll be running out of oil at Cushing’s delivery point.”
The market has been eating up Cushing’s raw stocks at an “unbelievable pace — it’s unbelievable,” Flynn said. Inventories can “fall below the minimum operating levels for that storage point quite quickly.”
West Texas Intermediate Crude Oil For September Delivery CL00,
rose $2.44, or 3.6%, to $69.64 a barrel on the New York Mercantile Exchange, a 1.3% extension from Tuesday.
September Brent raw BRN00,
the global benchmark, gained $2.30, or 3.3%, to trade at $71.65 a barrel on ICE Futures Europe.
The EIA also reported that gasoline inventories fell 100,000 barrels, while distillate inventories fell 1.3 million barrels this week. The S&P Global Platts survey forecasts a decline in supply of 1.1 million barrels for gasoline and 600,000 barrels for distillates.
On Nymex, August gasoline RBQ21,
spiked at 3% to nearly $2.20 a gallon, while August fuel oil HOQ21,
rose 3.1% to about $2.08 a gallon.
Ahead of the EIA’s weekly update on Thursday’s natural gas deliveries, the August natural gas contract NGQ21,
traded at $3.94 per million UK thermal units, up 1.6%, holding up at its highest month-to-month contract level since December 2018.
Oil bounced higher on Tuesday, with the US benchmark recovering from a 7.5% drop on Monday, the largest one-day drop since March.
Stock markets and other assets deemed risky, which were also slammed on Monday, have rebounded sharply on concerns that concerns over the spread of the delta variant of the coronavirus causing COVID-19 have been exaggerated.
Looking ahead, “a few factors will determine the next direction in crude,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
“On the bullish side, we are getting closer to the flesh of the hurricane season that could be a catalyst for the positive” if an active season disrupts energy production in the Gulf of Mexico region, he said.
“On the bearish side, it’s all about demand going forward,” Zahir said, adding that the virus could weigh “seriously” on global oil demand.
“We’re already seeing problems in Australia and Asia and if the variant gets worse here in the states, we could see demand take a big hit,” he said. These factors, and together with OPEC+’s decision to produce more oil, point to downside risk to oil prices, he said.