Oil futures gave up early gains on Wednesday to finish lower after official U.S. data showed domestic crude supplies fell less than the market expected last week.
With Wednesday’s decline, prices turned lower week to date after finding support in recent days on expectations the Federal Reserve interest rate-hike cycle is nearing its end. That had helped to ease concerns over the potential for a recession that would hurt energy demand.
Price action
-
West Texas Intermediate crude for August delivery
CL00,
+0.65% CL.1,
+0.37% CLQ23,
+0.37%
fell 40 cents, or 0.5%, to settle at at $75.35 a barrel on the New York Mercantile Exchange. Prices traded around $76.65 just ahead of the supply data’s release. -
September Brent crude
BRN00,
+0.62% BRNU23,
+0.62% ,
the global benchmark, declined by 17 cents, or 0.2%, to $79.46 a barrel on ICE Futures Europe. -
Back on Nymex, August gasoline
RBQ23,
+0.63%
added 1% to $2.72 a gallon, while August heating oil
HOQ23,
+0.54%
added 1.6% at $2.64 a gallon. -
August natural gas
NGQ23,
-0.47%
shed 1% to $2.60 per million British thermal units,
Supply data
The Energy Information Administration on Wednesday reported weekly declines for U.S. crude, as well as gasoline.
U.S. commercial crude inventories fell by 700,000 barrels for the week ending July 14, the EIA said.
On average, analysts polled by S&P Global Commodity Insights expected the report to show a decline of 2.25 million barrels. The American Petroleum Institute late Tuesday said U.S. crude inventories fell by 798,000 barrels last week, according to news reports.
The EIA report also revealed a supply fall of 1.1 million barrels for gasoline, while distillate stockpiles were roughly unchanged for the week. Analysts had forecast a weekly fall of 900,000 barrels for gasoline, while distillates were expected to be unchanged.
Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 2.9 million barrels for the week, the EIA said, while domestic oil production and stocks in the Strategic Petroleum Reserve were unchanged.
Other market drivers
Oil prices were “somewhat subdued” given some concerns about the global economic outlook, said Phil Flynn, senior market analyst at The Price Futures Group.
Still, the market has to realize that oil demand “continues to be strong in the United States and China,” and the market is starting to draw on stocks at Cushing, Okla. instead of the SPR, he said. That “should be a warning sign for the coming weeks.”
So if demand holds up, “we’re going to see significant drawdowns in both oil and product inventories,” said Flynn. However, a rebound in the U.S. dollar is “tempering enthusiasm” as the market tries to judge what the Federal Reserve’s next move is going to be after softer housing and inflation data seem to suggest the rate-hike cycle may soon peak.
With oil supplies expected to tighten in the second half of the year, it’s only a matter of time until Brent moves solidly above $80 a barrel, Warren Patterson and Ewa Manthey, commodities strategists at ING, said in a note.
“How convincing this move will be will really depend on whether we see a big shift in speculative sentiment. Whilst we have seen an increase in speculative buying in recent weeks, historically it is still fairly modest, particularly when you consider the tightening that is expected in the physical market,” they said.
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