Macro

Oil Extends Advance as US Crude Stockpiles Drop 3.4M Barrels

Oil prices rise as U.S. crude stockpiles fall by 3.4 million barrels, WTI hits $82 per barrel.

By Athena Xu

7/10, 19:53 EDT
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Key Takeaway

  • Oil prices rose for the second day, with WTI at $82.41 and Brent at $85.08, driven by a 3.4 million barrel decline in US stockpiles.
  • Increased jet fuel and gasoline consumption in the US signals growing demand amid the summer travel season.
  • OPEC+ supply cuts and Russia's output reductions have supported crude prices, while traders await IEA's market assessment and US economic data for further direction.

Oil Prices Surge on Demand Signals

Oil prices have risen for the second consecutive day, driven by signs of increasing demand and a broader risk-on sentiment in financial markets. West Texas Intermediate (WTI) crude climbed above $82 per barrel, marking a 0.9% gain on Wednesday, while Brent crude closed near $85 per barrel. The uptick in prices is supported by a significant drawdown in U.S. stockpiles, which fell by 3.4 million barrels last week. This decline in inventories is accompanied by rising consumption of jet fuel and gasoline, reflecting robust demand during the ongoing summer travel season.

The U.S. Energy Information Administration (EIA) data revealed that the four-week average for jet fuel demand reached its highest level since 2019, while gasoline demand also improved to its highest seasonal level since 2021. "This summer was expected to be a pretty good driving season, and it seems to be playing out that way," said Brian Kessens, managing director at Tortoise Capital Advisors LLC. Additionally, inventories at the Cushing storage hub, the delivery point for WTI futures, fell to their lowest level since late April, further bolstering prices.

OPEC+ Supply Cuts and Market Dynamics

Crude oil prices have been buoyed this year by supply cutbacks from OPEC+ members, despite some nations exceeding their agreed output limits. Notably, Russia made significant reductions in June, contributing to the overall supply constraints. The market is also anticipating a monthly report from the International Energy Agency (IEA) later on Thursday, which will provide an assessment of global crude balances for the second half of the year.

The relatively muted price movements in recent months have led to a decline in volatility, with Brent's implied volatility near its lowest level in six years. This stability is partly due to the market's expectation of looser U.S. monetary policy. Federal Reserve Chair Jerome Powell indicated that while the Fed is monitoring labor market weakness, more evidence of slowing inflation is needed before considering rate cuts. This cautious stance has tempered some of the bullish sentiment in the oil market.

U.S. Inventory and Production Insights

The latest EIA data showed a 3.4 million barrel draw in U.S. commercial crude oil inventories, bringing the total to 445 million barrels. This drawdown was a bullish surprise compared to the Bloomberg median expectation of a 1 million barrel build. The majority of the stock draw occurred in the U.S. Gulf Coast, which saw a nearly 6 million barrel decline, while the West Coast experienced a 2.2 million barrel increase.

Despite higher estimated production and rising net crude imports, stronger refinery runs more than offset these factors, leading to the overall stock draw. Domestic crude production was estimated at 13.3 million barrels per day, up 100,000 barrels per day week-over-week. Net imports of crude oil rose by over 600,000 barrels per day to 2.7 million barrels per day, driven by lower gross exports and higher gross imports.

Gasoline inventories fell by 2 million barrels to 229.7 million barrels, a bullish surprise compared to the expected 1 million barrel draw. The national average retail gasoline price increased to $3.54 per gallon, up about $0.10 from a month ago. Meanwhile, distillate inventories rose by 4.9 million barrels to 124.6 million barrels, a bearish surprise compared to the expected 0.5 million barrel build.