Crude Oil Futures
Fundamental Analysis

Oil Prices Soar 2% on Storage Drawdown and Supply Fears

  • There was a larger-than-expected drawdown in US oil storage.
  • Iran called for an oil embargo on Israel due to the conflict in Gaza.
  • Data indicated faster-than-expected economic growth in China.

Oil prices surged by approximately 2% to reach a two-week high on Wednesday. This increase was driven by a larger-than-expected drawdown in US oil storage and concerns about global oil supplies. 

During the week ending on October 13, US Energy Information Administration (EIA) reported that energy companies removed 4.5 million barrels of crude oil from stockpiles. It far exceeds the 0.3 million barrel draw that analysts had predicted in a Reuters poll. 

Additionally, on Tuesday, the American Petroleum Institute (API) reported a 4.4 million barrel decrease in stockpiles, marking the fourth decline in crude oil storage in five weeks. This substantial drop contrasted with the 1.7 million barrel weekly drawdown from the previous year and the five-year (2018-2022) average increase of 2.5 million barrels.

Notably, oil supplies at the Cushing storage facility in Oklahoma decreased by 0.8 million barrels, reaching their lowest level since October 2014. This sparked concerns about the quality of the remaining oil at the delivery point for US oil futures. 

Phil Flynn, an analyst at Price Futures Group, emphasized the significance of this decline, stating that it could support the entire oil market. 

WTI futures surge (Source: NYMEX)

WTI futures surge (Source: NYMEX)

Oil prices also saw a boost after Iranian Foreign Minister Hossein Amirabdollahian called for an oil embargo on Israel. This call followed a tragic incident in Gaza, where hundreds of Palestinians were killed in a hospital blast, with both Israeli and Palestinian officials pointing fingers at each other.

The Organization of the Petroleum Exporting Countries (OPEC) does not currently plan to take immediate action regarding Iran’s call.

The situation in the Middle East also had political repercussions as Jordan canceled a summit with US President Joe Biden, Egyptian, and Palestinian leaders. Biden arrived in Israel, expressing solidarity with Israel in its conflict with Hamas and supporting Israel’s account of the hospital blast. 

Furthermore, official data indicating faster-than-expected economic growth in China, the world’s largest oil importer, in the third quarter, provided additional support for oil prices. 

Meanwhile, in the United States, the world’s biggest oil consumer, higher-than-expected September retail sales raised expectations of another interest rate hike by the end of the year. Such rate hikes, aimed at controlling inflation, can potentially slow economic growth and reduce oil demand.