After a storm threatened refining in the Gulf Coast region then moved on to the East Coast of the U.S. last week, crude prices jumped nearly 2 percent on Wednesday according to United States industry reports, which showed a significant drawdown in crude inventories.
The American Petroleum Institute said that inventories are down by over 12 million barrels in the past seven days following a levelling off in the market on Tuesday. That result was well short of expectations, with most specialists projecting an increase in stock by several thousand barrels.
There was a rise of 70 cents for benchmark Brent crude at $48.64 in afternoon trading. U.S. light crude made a move of 80 cents to $46.24 compared with a 68 cent rise in the morning session.
Due to the shale oil boom of the past two years, United States crude inventories have been at record highs. However, Hurricane Hermine severely hampered imports and led to a large chunk of lost crude output in the U.S.
Twelve percent of Gulf of Mexico production was halted until the storm passed, according to a government press release.
“We are still looking at a fairly bearish crude market,” says Anthony Russell, Senior Vice President at Monex BMO Securities. “The API report is a singular ray of hope on the downward trend so the large oil draw was fleeting.”
Crude prices were also given a lift by encouraging figures from one of the United States biggest trading partners, China, which upped their imports by 25% last month leaving them with their biggest stock of crude in decades. Much of the increase in orders is down to a rush by refiners to take advantage of low prices before import quotas terminate at the end of the year.
In an OPEC meeting which ended last Tuesday, Saudi Arabia agreed with some non-OPEC nations, notably Russia, to stabilize the crude market, leading to oil climbing to a weekly high. Those highs didn’t last, however, as many producer nations are still deliberating over whether to join the agreement. There will be an extension of the talks in an informal summit at the end of this month in Algeria.
Considering global markets are now fully supplied, most observers are predicting crude prices to drop before that meeting.
“We believe that crude has peaked now and the only way is down after this. All indicators show the price range limit has been reached,” Commerzbank crude analyst Carsten Fritsch said.
