Oil Extends Losses Over Disappointing Stock Draw, Libya Disruptions Shrugged Off

Geopolitical tensions continue to be downplayed in trading activity: File Image/Pixabay

A smaller than expected U.S. crude stock draw caused nervous traders on Wednesday to extend  oil's losses for a second session, while worries over demand in China and its implications for the global market continued.

Brent settled down 90 cents, or 1.13 percent, at $78.65 per barrel, while West Texas Intermediate settled down $1.01, or 1.34 percent, to $74.52.

Energy Information Administration data revealed that U.S. crude inventories dropped by 846,000 barrels to 425.2 million barrels last week, far less than expectations for a 2.3 million draw.

This was accompanied by increased refining activity, which caused Matt Smith, lead oil analyst at Kpler, to state, "It is a little surprising to see such a small crude draw if refinery runs were really that strong, at a six-week high," but he added that "Ongoing strength in imports and a tick lower in exports helped keep the draw in check."

Meanwhile, Amarpreet Singh, an analyst at Barclays, wrote in a note that, "Demand in China remains weak and the expected second-half rebound has yet to show credible signs of commencing."

In a separate statement, Singh said, "Oil prices remain range-bound, despite the potential of a large disruption in Libyan supplies and elevated tensions in the Middle East."

Bloomberg noted that while crude is still modestly higher for the year, the "specter" of the Organization of the Petroleum Exporting Countries (OPEC) "boosting supply from October is hanging over the market, although traders are split on whether the planned increases will go ahead."

In other oil news on Wednesday, a Ukrainian drone attack set a Russian oil depot on fire over 100 miles from the Ukrainian border in the Rostov region; Ukraine also attacked the Zenit oil depot over 700 miles away in the Kirov region.

However, with Russia intensifying its retaliatory offensive in the Donbass region, Kyiv Post describes Ukrainian forces on this front as "outgunned" and outnumbered.