U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday in an attempt to claw back yesterday’s steep losses. The early price action is being supported by a surprise draw in crude inventories according to an industry report. Gains are being limited by a warning of unprecedented uncertainty in oil markets due to a difficult economic environment and political risk.
American Petroleum Institute (API) Report
The API reported a surprise crude oil inventory draw the week-ending November 16, of 1.545 million barrels for the week-ending November 16. The reported draw was the first after six weeks of straight builds as reported by the API. Analysts were looking for a build of 2.941 million barrels.
Inventories in the Cushing, Oklahoma facility this week had climbed by 398,000 barrels, while analysts had estimated a bigger build of 2.419 million barrels this week.
The API also reported a build in gasoline inventories for the week-ending November 16 in the amount of 706,000 barrels. Analysts were looking for a draw of 198,000 barrels for the week. Distillate inventories were down by 1.832 million barrels, compared to an expected draw of 2.754 million bpd.
Traders also said that record crude imports by India of almost 5 million barrels per day (bpd) also supported prices.
Besides the inventories data from the API, crude oil traders are going to take their cues from today’s U.S. Energy Information Administration (EIA) weekly inventories report due out at 1530 GMT. It is expected to show a 2.5 million barrel build. This figure may change ahead of the report due to the surprise API number.
Also influencing prices will be the direction of the U.S. Dollar. A stronger greenback is likely to limit gains in dollar-denominated crude oil. Traders will also be monitoring the volatility and direction in the stock market. Yesterday’s plunge in U.S. equity markets helped drive down crude oil prices, probably due to hedge fund margin calls.
Despite the early strength, crude oil continues to remain under the influence of several negative factors. Yesterday, IEA chief Fatih Birol said, “The global economy is still going through a very difficult time and is very fragile.”
Goldman Sachs added, “Concerns over excess supply in 2019… (and) a broader cross-community and cross-asset sell-off as growth concerns continue to mount.”
Crude is likely to remain sideways to lower until the stock market stabilizes and until we get the reaction from the expected production cut announcements by OPEC and its allies at the OPEC meeting in Vienna on December 6.
Crude could even turn higher sooner if a trade agreement between the U.S. and China is struck at the G20 summit in Argentina on November 30 to December 1.