Crude values recover some as US crude inventories heavily drawn again

Front-month ICE Brent has recovered from today’s low of $95.44/bbl, to $96.53/bbl at 13.00 GMT.

PHOTO: Crude values recovers some losses as US crude oil inventories heavily drawn again. Getty Images

Upward pressure:

The US Energy Information Administration (EIA) reported a crude oil inventory decline of 3.3 million bbls in the week to 26 August, much bigger than the draw of 1.5 million bbls expected by analysts polled by Reuters.

At 421.7 million bbls, US crude inventories are about 6% below the five-year average. Releases from Strategic Petroleum Reserves (SPR) also accelerated to 3.10 million bbls.

Some market participants think OPEC+ could announce production cuts at its upcoming meeting on 5 September. Crude values have been supported after Saudi Arabia warned that OPEC+ would reduce production. Saudi officials have argued that the Brent futures price is not aligned with market fundamentals.

Other members in the group have somewhat supported Saudi Arabia’s proposal to cut production. “It seems OPEC+ isn’t interested in the oil price slipping much below $100 a barrel,” said OANDA's senior market analyst Craig Erlam.

Downward pressure:

Renewed Covid-19 outbreaks in China and fresh lockdowns have threatened the country's demand recovery. Several cities in China, including Shenzhen and Dalian are imposing new lockdowns and restrictions to curb rising Covid-19 cases.

Some independent Chinese refiners are planning to increase refinery maintenance activity in September amid slower demand, ANZ commodity strategist Daniel Hynes said.

Pressure on crude values have eased some, after Iraqi state-owned State Organization for Marketing of Oil (SOMO) announced that its oil exports were unaffected due to political unrest in the country. Violent clashes and protests that erupted on Monday eased yesterday after Iraqi cleric Moqtada al-Sadr ordered his followers to end their protest.

SOMO asserts it can redirect more crude oil exports to Europe if required, Reuters reported citing comments from SOMO officials. The refiner began exporting big volumes to Europe in June after some of its major buyers such as India and China stepped up purchases of Russian Urals.

By Nithin Chandran

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