Profit Taking Blunts Oil Traders' Optimism Over Tightening Supplies

Analysts think the road to $80 oil "shouldn't be too hard": File Image/Pixabay

Easing inflation and tightening supplies were initially welcomed by oil traders on Wednesday, but in the end their positive reaction to another drop in U.S. crude inventories was overshadowed by profit taking.

Brent declined 17 cents at $79.46 per barrel, while West Texas Intermediate dropped 40 cents at $75.35 per barrel.

The U.S. inventory drop was less than the 2.4 million barrel decline that analysts had expected: the Energy Information Administration reported a 708,000 barrel fall last week to 457.4 million barrels.

Also, crude sales from the U.S. Strategic Petroleum Reserves ended in June, tightening the market for crude oil globally and causing Andrew Lipow, president at Lipow Oil Associates, to remark, "Now that the sales from the SPR have ended, inventories are going to depend on refining runs as well as imports."

Phil Flynn, senior market analyst at Price Futures Group Inc., added, "The market is going to be on much more solid footing."

For the record, net U.S. crude exports rose by 1.67 million barrels per day (bpd) to 3.81 million bpd in the week ending July 14, according to the EIA.

Meanwhile, Russia's crude shipments fell to a six-month low in the four weeks to July 16, suggesting  that Moscow is fulfilling its pledge with the Organization of the Petroleum Exporting Countries (OPEC) to reduce third-quarter export plans by 2.1 million tons, in line with its previously stated pledge to cut overseas shipments by 500,000 bpd in August.

Conversely (and arguably tempering trading enthusiasm), China has ramped up crude output to 4.3 million bpd, and it was reported on Wednesday that oil imports in June jumped 45.3 percent on the year to the second-highest monthly figure on record, to 12.67 million bpd.

As for easing inflation rates, Ed Moya, senior market analyst at OANDA, said, "A retail sales report confirmed the U.S. economy is still healthy and ready for another quarter-point rate rise by the Fed, [but] Wall Street grows confident Fed will be 'One and Done' on rate hikes.

"Brent crude looks like it wants to find a home above the $80 level and that shouldn't be too hard as long as the crude demand outlook doesn't get blindsided."