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Oil finds relief in stockpile drop after stumbling on API report

Aug 30 2018 09:18
Heesu Lee, Bloomberg

Oil’s again being propped up by US government data showing shrinking stockpiles, after prices stumbled earlier this week on an industry report that signalled an inventory gain.

Futures in New York held gains after rising 1.4% on Wednesday in their biggest advance since early August. That was after the Energy Information Administration reported that the US crude hoard fell more than analysts forecast for a second week. That eased concerns spurred by American Petroleum Institute data on Tuesday that portended an increase.

Meanwhile, the structure of long-term futures is still signalling fears of a supply crunch after American sanctions targeting OPEC member Iran take effect in November.

Global benchmark Brent crude’s premium to West Texas Intermediate is rising on doubts over whether other producers can close any supply gap, and as infrastructure problems weigh on US oil. Investors are also wary of higher inventories at the key Cushing, Oklahoma, storage hub.

“Falling crude stockpiles in the US signal that demand is strong, while concerns remain over supply disruptions from Iran due to American sanctions,” said Lim Jaekyun, a commodities analyst at KB Securities.

“US oil production can continue to climb, whereas we may see a possible output loss from one of the OPEC members and this is widening the spread between WTI and Brent.”

West Texas Intermediate crude for October delivery climbed as much as 33 cents to $69.84 a barrel on the New York Mercantile Exchange and traded at $69.81 at 08:53. The contract had rebounded 98 cents to settle at $69.51 on Wednesday. Total volume traded was about 52% below the 100-day average.

Brent for October settlement added 22c to $77.36 a barrel on the London-based ICE Futures Europe exchange. It climbed $1.19 to $77.14 on Wednesday. The global benchmark crude was at a $7.54 premium to WTI, after closing at $7.63, the widest gap since June.

Market optimism

December crude futures on the Shanghai International Energy exchange rose 2.8% to 522.5 yuan a barrel, after sliding 0.7% in the previous session.

Oil’s also been helped by wider financial-market optimism after US President Donald Trump said that talks between his country and Canada to overhaul the North American Free Trade Agreement are going well and that they could reach a deal this week. That follows a pact with Mexico agreed earlier this month.

The optimism, combined with the shrinking US stockpiles and concerns over Iran, has helped oil regain some of its losses after emerging-market turmoil and tit-for-tat tariffs between America and China threatened to hurt global economic growth.

Other oil-market news:

• Government data released on Wednesday showed US stockpiles declined 2.57 million barrels last week, more than the 1.49 million drop forecast in a Bloomberg survey.

• Crude was dragged lower on Tuesday after the American Petroleum Institute was said to report that crude inventories gained 38 000 barrels last week.

• Brent futures for November settlement are 14 cents a barrel higher than those for December.

• This market structure, known as backwardation, between the second and third-month contracts is at the highest level since July.

• Iraq sees a need to increase crude exports and says it’s ready to ship more as soon as the Organisation of Petroleum Exporting Countries agrees how members will share a collective supply boost, according to the acting director-general of the state-run Oil Marketing.

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commodities  |  markets  |  oil
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