Oil Prices Rise on Unexpected Drop in US Crude Inventories

Oil futures saw a boost on Wednesday morning as industry data revealed a surprising decrease in US crude inventories last week. This positive news helped drive up oil prices, signaling a potential shift in the market.

Price Action

• West Texas Intermediate (WTI) crude for September delivery rose 76 cents (0.9%) to $86.38 a barrel on the New York Mercantile Exchange.
• October Brent crude, the global benchmark, increased 64 cents (0.7%) to $86.81 a barrel on ICE Futures Europe.

Market Drivers

Late Tuesday, the American Petroleum Institute (API), an industry trade group, reported a 4.1 million barrel drop in US crude inventories for the previous week. This information, sourced from API data, was positively received by the market despite an increase in gasoline and distillate inventories.

The Energy Information Administration (EIA) is set to release its official inventory data later on Wednesday. Analysts surveyed by S&P Global Commodity Insights anticipate a similar drop of 930,000 barrels in crude inventories during the previous week. Gasoline stocks are expected to decrease by 1.1 million barrels, while distillates remain unchanged.

In the previous week, the EIA announced a record-breaking decrease of over 17 million barrels in crude inventories for the week ended July 28.

Oil prices initially stumbled during Tuesday's session due to China's trade data, which indicated a significant decline in crude consumption throughout July. However, prices rebounded and closed higher after Saudi Arabia's cabinet confirmed OPEC+ production measures, reassuring analysts.

The recent tighter supply, largely influenced by voluntary cuts from Saudi Arabia and Russia, has been instrumental in driving up crude prices over the past six weeks. Both Brent and WTI ended Tuesday close to their highest levels since April 2023.

Despite concerns raised by the negative Chinese data, oil traders remain optimistic and focused on the upward trend in prices. Naeem Aslam, CIO at Zaye Capital Markets, noted that traders are comfortable with their approach to oil trading and are seemingly disregarding the unfavorable news.

Overall, the prevailing sentiment among oil traders suggests that the market is favoring higher prices, carrying a strong momentum.