Oil Records Moderate Increase as U.S Stockpiles Decline
Oil market records moderate increase as the United States (U.S.) crude drawdown amidst virus spread in China, Japan and other countries which has resulted in fresh lockdowns. U.S. crude oil stockpiles dropped last week to their lowest levels since January 2020, the Energy Information Administration said on Wednesday.
Inventories have been declining for several months as U.S. fuel demand has rebounded with Americans getting vaccinated against coronavirus. Infections, however, are surging again and analysts are watching to see if fuel demand slackens, particularly across southern states where the number of people infected has surged.
International benchmark Brent crude was trading at $69.64 per barrel, rise modestly at 0.88% after closing Tuesday at $69.03 a barrel. American benchmark West Texas Intermediate (WTI) traded at $66.88 a barrel at the same time for a 0.81% rise after ending the previous session at $66.34 per barrel.
Late Tuesday, the American Petroleum Institute (API) predicted a drop in US crude oil stockpiles of 1.16 million barrels, compared to the market expectation of a fall of 1.26 million barrels.
A significant drop in inventories indicates an increase in crude demand in the US, the world’s largest oil consumer, assuaging market concerns over dwindling demand. In addition to that, a weakening US dollar also supported the upward oil price trend.
The US dollar index, which measures the value of the American dollar against a basket of currencies including the Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, fell 0.05% to 93.08 on Wednesday.
The falling value of the dollar encourages oil-importing countries to buy more crude oil at lower dollar prices, driving up crude prices.
Oil prices have been in decline for the last five days due mainly to demand concerns, as growth in China, the world’s largest consumer, is being hampered by rising Delta variant cases and recent floods.
The Chinese economy underperformed significantly in July, with widespread flooding and an outbreak of the coronavirus Delta strain fueling fears that the country’s development trajectory might lose steam.
Investors remain concerned with the lacklustre economic outlook in China. Industrial production rose 6.4% in July from the same month a year ago, but well below market estimates of 7.8%. Retail sales were up 8.5%, again much lower than the 11.5% expectation.
U.S. crude inventories fell 3.2 million barrels last week to 435.5 million barrels, their lowest since January 2020 and more than anticipated. Gasoline stocks, however, rose modestly, which kept the market from moving up given ongoing worries about coronavirus.
The four-week average of overall product supplied to the market – a measure of demand – was 20.8 million barrels per day, in line with pre-coronavirus levels from 2019.
Read Also: Brent Crude Price Drops amidst Uncertainty around Demand
U.S. crude production rose to 11.4 million bpd, though weekly figures are volatile. Shale oil production, which accounts for most of U.S. output, is expected to rise to 8.1 million bpd in September, the highest since April 2020, according to the Energy Information Administration’s monthly drilling output report.
Oil Records Moderate Increase as U.S Stockpiles Decline
