Crude oil futures are soaring in the middle of the trading week, buoyed by storage levels falling to their lowest levels in 18 months. Oil prices have been in freefall for the last two weeks, primarily because of the supply negotiations surrounding the Organization of the Petroleum Exporting Countries (OPEC). After a substantial correction, will US crude initiate another enormous rally?
September West Texas Intermediate (WTI) crude oil futures spiked $3.24, or 4.82%, to $70.44 per barrel on the New York Mercantile Exchange. WTI prices have slumped 4% this month, but they are still up more than 45% year-to-date.
Brent, the international benchmark for oil prices, topped the $72 mark midweek. October Brent crude futures surged $2.96, or 4.27%, to $72.31 a barrel on London’s ICE Futures exchange. Brent prices have also shed about 3% this month, but they have advanced 40% on the year.
According to the US Energy Information Administration (EIA), domestic inventories of crude rose 2.108 million barrels in the week ending July 16, falling short of the median estimate of a decline of 4.466 million barrels. This is up from the nearly eight million drawdown in the previous week.
Crude supplies at the Cushing, Oklahoma storage hub decreased 1.347 million barrels. This is the lowest storage inventories in 18 months. Gasoline stocks fell 121,000 barrels, while distillate supplies dropped 1.349 million barrels.
Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch that global crude markets are “still very tight,” adding:
“We did see a big surprise surge of imports and that kept the market somewhat at bay but if you look at the draw in Cushing, Oklahoma, we’re getting to a dangerously low level,” he said. “We’re almost out of oil at the Cushing delivery point if we continue to draw at this rate.”
Earlier this week, OPEC and its allies, OPEC+, agreed to start increasing output beginning next month. The move was made as the economic consequences of the coronavirus pandemic begin to diminish. The agreement also ends a dispute between Saudi Arabia and the United Arab Emirates (UAE) that triggered fears of an all-out production war.
“We are here to stay,” Prince Abdulaziz, the Saudi Kingdom’s oil minister, said during a news conference after a tense meeting. “What bonds us together is way beyond what you imagine.”
In other energy commodities, September natural gas futures rose $0.068, or 1.75%, to $3.944 per million British thermal units (btu). August gasoline futures added $0.0799, or 3.75%, to $2.2114 per gallon. August heating oil futures soared $0.0772, or 3.83%, to $2.0914 a gallon.