Oil futures rose on Wednesday, as a decline in crude stocks at the Cushing, Okla. storage hub to the lowest level since early 2020 provided support, outweighing any pressure from the first weekly U.S. crude inventory rise since mid-May.
The Energy Information Administration reported on Wednesday that U.S. crude inventories rose by 2.1 million barrels for the week ended July 16, marking the first weekly rise in nine weeks.
On average, analysts polled by S&P Global Platts forecast a decline of 6.7 million barrels for crude stocks, while the American Petroleum Institute on Tuesday reported an 806,000 barrel increase.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub declined by 1.4 million barrels for the week to 36.7 million barrels. Stocks at the storage hub haven’t been this low since January 2020, EIA data show.
The market is starting to realize that the overall situation is “still very tight,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.
“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.”
The market has been “draining” crude stocks in storage at Cushing at an “incredible pace — it’s unbelievable,” said Flynn. Stocks may fall “below the minimum operating levels for that storage point pretty soon.”
The EIA also reported that gasoline supplies edged down by 100,000 barrels, while distillate stockpiles fell by 1.3 million barrels for the week. The S&P Global Platts survey forecast a supply decrease of 1.1 million barrels for gasoline and 600,000 barrels for distillates.
Ahead of the EIA’s weekly update on natural-gas supplies Thursday, the August natural-gas contract NGQ21,
Oil bounced higher on Tuesday, with the U.S. benchmark rebounding from a 7.5% fall on Monday that marked its biggest one-day drop since March.
Equity markets and other assets perceived as risky, which were also slammed on Monday, have rebounded sharply on ideas worries over the spread of the delta variant of the coronavirus that causes COVID-19 were overdone.
Looking ahead, “a few factors will determine the next direction in crude oil,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
“On the bullish side, we are getting closer to the meat of the hurricane season that could be a catalyst to the upside” if an active season disrupts energy production in the Gulf of Mexico region, he said.
“On the bearish side, everything is about demand going forward,” said Zahir, adding that the virus could weigh “seriously” on worldwide demand for oil.
“We are already seeing issues in Australia and in Asia and if the variant gets worse here in the states, we could see demand take a sizeable hit,” he said. These factors, and along with OPEC+ decision to produce more oil, point toward downside risk for oil prices, he said.