- The global Brent benchmark surged to its highest since January.
- Government data revealed a decline of 2.7 million barrels in US gasoline stocks.
- Saudi Arabia’s cabinet reaffirmed its backing for OPEC+ output cuts.
On Wednesday, oil prices rose as the global Brent benchmark surged to its highest since January. This rise came after US fuel reserves were significantly reduced, combined with output cuts from Saudi Arabia and Russia. These cuts overshadowed worries about sluggish demand from China.
The West Texas Intermediate crude ended at $84.40, marking a $1.48 (1.8%) increase and reaching its highest since November 2022.
Government data revealed a decline of 2.7 million barrels in US gasoline stocks and a 1.7 million-barrel drop in distillate inventories (which includes diesel and heating oil). These figures defied analysts’ predictions from a Reuters poll, where the figure was expected to hold steady.
Andrew Lipow, president of Lipow Oil Associates in Houston, remarked, “The reductions in refined products continue to impact the oil market positively.” Despite a larger-than-expected 5.85 million-barrel surge in US crude stocks, the market’s response was muted following a historical decrease the previous week.
The decline in US fuel stocks offset some concerns about demand. These concerns were triggered by Chinese data revealing an 18.8% decrease in crude oil imports in July compared to the previous month. These imports reached their lowest daily level since January.
China’s consumer sector entered deflation, and factory-gate prices further decreased in July. This underscores the challenges the world’s second-largest economy faces in reigniting demand.
WTI futures (Source: Nymex)
Supporting the price were the commitments of major exporters. Saudi Arabia, a top exporter, announced plans to prolong its voluntary 1 million barrels per day production cut for an additional month into September. Likewise, Russia declared a 300,000 bpd reduction in oil exports for September.
Charalampos Pissouros from XM noted, “The recent rebound is primarily a result of major producers like Saudi Arabia and Russia committing to limit supply for another month.”
Crude marked its sixth consecutive weekly gain, attributed to reduced OPEC+ supplies and optimism about China’s demand recovery due to potential stimulus measures. According to state media reports on Tuesday, Saudi Arabia’s cabinet reaffirmed its backing for OPEC+ precautionary measures to stabilize the market.
Market focus will also be on the July US Consumer Price Index, scheduled for release on Thursday, with expectations of a minor year-over-year acceleration.