Crude Oil Rallies 4% on US Supply Drop, Hurricane Sally

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Crude oil futures are rallying more than 4% midweek, buoyed by a weekly drop in domestic inventories and the threat of Hurricane Sally. This is one of the biggest jumps in US crude prices in weeks, allowing West Texas Intermediate (WTI) futures to retest the important $40 psychological level. Did oil prices experience a correction, or are the gains just a single-session spike before they slump again?

October West Texas Intermediate (WTI) crude futures surged $1.56, or 4.08%, to $39.84 per barrel at 15:59 GMT on Wednesday on the New York Mercantile Exchange. US crude is looking to pare its September losses, which have added up to around 7%. Year-to-date, crude is still down 35%.

Brent, the international benchmark for oil prices, also soared in the middle of the trading week. November Brent futures picked up $1.47, or 3.63%, to $42.00 a barrel on London’s ICE Futures exchange. Brent has endured the same bearish trend in September, falling around 7%. So far this year, it has plunged around 36%.

According to the US Energy Information Administration (EIA), domestic stockpiles decreased by 4.4 million barrels for the week ending September 11. This is a lot bigger than the median estimate of 1.8 million barrels. Crude inventories at the Cushing, Oklahoma storage facility slipped 100,000 barrels. Gasoline supplies dropped 400,000 barrels, while distillate stockpiles added 3.6 million barrels.

Last week, the Baker Hughes oil rig count dipped from 181 to 180, bringing the total rig count to 254.

The energy industry is maintaining a bleak outlook for crude demand recovery. This week, the International Energy Agency (IEA) slashed its projection for oil demand this year because the demand recovery has fallen short of previous bullish expectations. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, think global crude demand will fall more sharply than initially anticipated. The Russian Ministry of Energy does not expect a recovery for another two to three years.

Meanwhile, investors are keeping a close eye on Hurricane Sally as it sits off the US Gulf Coast. While it is a Category 2 storm, Rystad Energy projects that it the weather event could trigger a total outage of between three million and six million barrels over the next ten days.

In other energy commodities, October natural gas futures slipped $0.069, or 2.92%, to $2.293 per million British thermal units (btu). October gasoline futures tacked on $0.04, or 3.51%, to $1.1781 per gallon. October heating oil futures edged up $0.0106, or 0.96%, to $1.1099 a gallon.

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