WTI Stabilizes Above Six-month Lows, Supported By Bullish Weekly US Inventory Figures

WTI Stabilizes Above Six-Month Lows on Bullish US Inventory Report

Front-month futures of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, stabilized just above six-month lows in the upper $80s per barrel on Wednesday, with oil traders shrugging off the headwinds of a (mostly) stronger US dollar and weakness in US equity markets and instead focusing on a bullish weekly US oil inventory report.

According to the US Energy Information Agency (EIA), in the week ending last Friday, headline US crude oil stocks slumped by 7.1 million barrels, a much larger drawdown on stocks than the 275,000 drop expected by analysts. The drawdown was in part explained by another surge in US oil exports, which hit a new record high of 5 million barrels per day last week, the EIA said.

US oil exports have been surging as of late amid a sharp rise in the WTI-Brent oil discount that makes the latter more attractive for purchase by international buyers. WTI’s discount relative to Brent surged in wake of Russia’s February invasion of Ukraine, as European demand for Brent surged as buyers scrambled to replace Russian oil exports in anticipation of sanctions.

Another big positive of the latest US inventory report was a much larger than expected drop in gasoline inventories, which fell by 4.6 million barrels versus consensus bets for a 1.1 million barrel draw. Analysts said this is a sign that the recent fall in US fuel prices has started to stimulate demand.

But upside in oil markets was capped on Wednesday amid concerns about a potential increase in Russian oil output. According to a Reuters report citing Russian government documents, Russia has started increasing output to satiate demand from Asian buyers and expects to increase output into 2025. Traders also continue to monitor developers on the Iran nuclear deal front, with the EU and US reportedly currently considering Iran’s response to a final proposal put forth by the EU to revive the deal earlier this week.

Analysts think a deal that results in a lifting of US sanctions on Iranian exports could bring over 1 million barrels back to global markets. Goldman Sachs said in a note on Wednesday that it would have to reduce its 2023 WTI forecast by between $5 and $10 from its current $125 per barrel level if a deal was struck. But most think the gaps between the US and Iran remain too large to overcome.

US Natural Gas Prices Just Miss Out on Annual Highs

US natural gas prices came close but were unable to hit fresh annual highs above $9.60 on Wednesday. Price ultimately fell just under 2.0% on the session back to the $9.10s. Elsewhere, the dovish-leaning Fed minutes were unable to lift gold prices, which fell nearly $15 to around $1,760, with traders instead focusing on stronger than expected core US retail sales figures for July. Copper prices were choppy in the $3.60 area and were last down about 1.0% on the day.

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