Oil Jumps Over Big Drawdown in U.S. Inventories

Oil Jumps Over Big Drawdown in U.S. Inventories

The global oil market rallied midweek over a massive drawdown in US crude inventories and tighter supply from producers. According to trading records, U.S. crude futures finished higher for a fifth consecutive session.

Its price surged by 0.6% at $81.63 a barrel following an EIA report that showed yet another massive weekly drawdown of US crude oil inventories.

Investors are also concerned about pushing prices too high ahead of important US data Friday on jobs, manufacturing and more. Brent crude also ends higher, at close to about $86. Meanwhile, BMO Capital Markets on Wednesday said costs for oil and gas producers support current oil prices and justify higher natural gas prices.

“Supply costs bottomed in 2020 at roughly $60/bbl; since then, supply costs have marched substantially higher, rising 23% in 2022 due to inflation and some erosion in underlying productivity. We expect supply costs to continue to move higher due to higher costs of capital, rising fiscal takes, and overall inflation.

“In addition, pressure to decarbonize and a focus on harvesting cash flow suggests commodity prices may need to move higher to promote investment. Meanwhile, it is evident in declining U.S. drilling productivity and global exploration success that producers must venture further out on the risk curve.

“We believe persistent cost pressure and chronic underinvestment since 2015 set the stage for higher oil prices and that the projected trend in cost structure underpins long-term support for oil prices >$80/bbl and gas prices ~$4/mcf,” the investment bank noted.

 West Texas Intermediate WTI crude oil rose on Wednesday as a report showed another big drop in US inventories, while the dollar weakened after the United States added fewer than expected private-sector jobs this month and Hurricane Idalia made landfall in Florida.

WTI crude for October delivery closed up US$0.47 to settle at US$81.63 per barrel, while October Brent crude, the global benchmark, was last seen up US$0.14 to US$85.63.

In its weekly survey, the Energy Information Administration said US oil inventories fell by 10.6 million barrels last week, more than the consensus estimate for a 2.9-million barrel drop, Oilprice.com reported.

The survey suggests demand remains solid, even as supplies remain tight amid OPEC+ cuts and Saudi Arabia’s voluntary production cut of one million barrels per day, which is scheduled to last through September but could be extended.

However, US demand could weaken as Hurricane Idalia hit the Florida coast early on Wednesday as a Category 4 storm though it has since weakened to Category One with 75 mile per hour winds.

“While our primary concern goes out to FL residents, we also see the storm as a small headwind for the refining space. At this point, it doesn’t look like any refineries are in the path of the storm, keeping the supply intact. However, FL is a major demand centre, with EIA 2021 data showing gasoline consumption of 584mbpd (6.6% of the US total), distillate consumption of 149mbpd (3.9% of US), and jet consumption of 134mbpd (9.8% of US),” Tudor, Pickering, Holt analyst Matthew Blair noted.

A weaker dollar is also supporting prices, as the ICE dollar index was last seen down 0.32 points to 103.21 after the ADP employment report showed the private sector added 177,000 new jobs in August, under expectation for a rise of 200,000, according to Marketwatch.

#Oil Jumps Over Big Drawdown in U.S. Inventories Oil Slumps as Iran Exports Boost Supply Side