West Texas Intermediate (WTI), the U.S. benchmark, rose more than 2.9 percent, while Brent rose only half that amount on the day after the EIA reported a larger-than-expected fall in U.S. crude oil inventories and the U.S. dollar weakened. U.S. crude oil inventories have fallen by more than 20 million barrels in the past three weeks as the driving season boosts demand.
As of 5:16pm ET on Wednesday, Brent crude was trading at $85.17, up 1.72%, up $1.44 from the previous day, while WTI was trading at $83.10, up 2.90%, up $2.34 from the previous day. The price of OPEC’s basket of 12 crude oils was $84.44.
The EIA reported a 4.9 million barrel decline in inventories for the week ending July 12. This was on top of a 3.4 million barrel decline the previous week, meaning U.S. crude oil inventories are now about 5% lower than the five-year average for this time of year.
The weekly inventory report and a weaker dollar offset continued negativity over concerns about China’s economic growth as it cut imports, weighing on global oil demand. China’s economy grew 4.7 percent in the second quarter, its slowest since the first quarter of last year.
A weaker US dollar typically boosts oil demand.
Both the Brent and WTI crude benchmarks have risen over the past week, but WTI has risen more. Brent’s premium over WTI is now at $2.12.
The market is currently in an inverse situation, with near-term contracts trading at a steep premium to longer-dated contracts. The premium between the one-month and six-month contracts is currently $3.41, which is the clearest indication that the market believes there is a shortage of crude oil in supply.
U.S. crude exports have so far benefited from a favorable tailwind from Saudi Arabia’s export cuts in July, likely leading to further declines in U.S. crude inventories this month.
Bloomberg reported that Saudi Arabia’s overseas crude oil exports fell to a 10-month low in June, to 168 million barrels per day (about 5.6 million barrels per day) for the month, just 250,000 barrels higher than the lowest level during the pandemic, according to Bloomberg.
Saudi Arabia is not the only major OPEC+ country to cut crude exports this summer: Russian crude exports have fallen from 5 million bpd in June to less than 4 million bpd so far in July, according to HFI Research.
At the same time, U.S. crude oil exports to Europe have also fallen, hitting a two-year low in June, Reuters reported, mainly due to a narrowing spread between Brent and WTI crude.
Article by Julianne Geiger of Oilprice.com
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