Oil futures climbed by more than 3% on Wednesday, eyeing their highest settlement since late July, after U.S. government data showed a more than six million-barrel weekly drop in domestic crude supplies, marking a sixth-consecutive weekly decline.
“For another week, stymied production and subdued refinery runs have offset each other — with both barely ticking higher in the last week as the U.S. Gulf Coast struggles to recover from the impact of Hurricane Ida,” said Matt Smith, lead oil analyst, Americas, at Kpler.
“Imports remained broadly on par with the prior week’s pace, while ongoing strength in crude exports from ports which were unaffected by the hurricane have helped crude inventories to a solid draw in this latest report,” he said in emailed commentary.
West Texas Intermediate crude for October delivery
the global benchmark, was up $2.42, or 3.3%, at $76.02 a barrel on ICE Futures Europe.
Both crude benchmarks are on track to post the highest settlement for a front-month contract since July 30, FactSet data show.
The Energy Information Administration reported on Wednesday that U.S. crude inventories fell by 6.4 million barrels for the week ended Sept. 10. That marked a sixth weekly decline in a row.
The drawdown was larger than the average decline of 3.5 million barrels expected by analysts polled by S&P Global Platts forecast. The American Petroleum Institute on Tuesday reported a 5.4 million-barrel decrease.
Adding to the price-supportive crude supply draw has been a “drop in both gasoline and distillate inventories,” Smith said, adding that a drop in implied demand for gasoline was outpaced by lower supply.
The EIA also reported weekly inventory declines of 1.9 million barrels for gasoline and 1.7 million barrels for distillates. The S&P Global Platts survey had forecast supply decreases of 2.2 million barrels for gasoline and 2 million barrels for distillates.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by 1.1 million barrels for the week, but total domestic petroleum production climbed by 100,000 barrels to 10.1 million barrels.
Oil “is being lent buoyancy by the supply outages in the Gulf of Mexico, which are tightening the market in the short term,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note ahead of the EIA data.
Hurricane Nicholas hit the Texas coast on Tuesday, bringing more rain and devastation to areas of the Gulf Coast previously inundated by Hurricane Ida in late August. Offshore oil and natural-gas production in the Gulf of Mexico has been slow to recover in the wake of Ida.
“Going forward we could see crude drift higher as there are several storms that are still out there,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
The Bureau of Safety and Environmental Enforcement late Tuesday estimated that 39.6% of offshore oil output in the Gulf remains shut in, equal to 720,217 barrels a day of production. Around 48.2% of natural-gas output is also shut in, equivalent to nearly 1.075 billion cubic feet a day of output.
The slow recovery in the Gulf has led to a rally for natural gas, with futures prices trading more than 27% higher month to date.
In Wednesday dealings, October natural gas
rose 30 cents, or 5.7%, to $5.56 per million British thermal units after the front-month contract on Tuesday marked the highest settlement since February 2014.
The risks to the energy complex are the coronavirus delta variant and energy demand, Zahir said, adding that there were some weak economic numbers out of China recently. “The biggest concern overall is how the virus evolves in the fall.”