Oil Rises As U.S. Stock Draws Dispel Demand Fears; But Bearishness Still Prevails

Futures remain higher year-to-date despite the hand-wringing: File Image/Pixabay

Three straight sessions of oil price losses ended on Wednesday as traders responded to news of large U.S. inventory drawdowns and the threat of supply risks from the wildfires in Canada.

Brent settled up 70 cents at $81.71 per barrel, while West Texas Intermediate settled up 63 cents to $77.59 per barrel.

The reversal in trading patterns came when the U.S. Energy Information Administration reported that gasoline stocks dropped by 5.6 million barrels, compared with expectations for a 400,000 draw; and distillates, which include diesel and heating oil, fell by 2.8 million barrels versus expectations for a 250,000 barrel increase.

Also, gasoline supplied to the market, a proxy for demand, increased by 673,000 barrels per day (bpd), according to the EIA.

But even though Bob Yawger, director of energy futures at Mizuho, remarked that, "Demand is better than anticipated," and despite the EIA figures representing the fourth weekly stockpiles draw, the market was reportedly still worried that the U.S. summer driving season would ultimately prove to be a bust.

Given that sentiment, Wednesday's gains were significantly driven by the annual wildfire season in Alberta, and Goldman Sachs stated in a note that although oil production in Canada remains solid, the worst of the wildfire season lies ahead and could pose a risk to supplies.

Once more, it fell upon Bloomberg to offer a bird's eye view of the oil market; the news agency noted  that despite persistent pessimism and the recent downward price spiral, "Futures are still higher year-to-date, as OPEC+ members maintain their output curbs and expectations build of an imminent cut in US interest rates."

Warren Patterson and Ewa Manthey, analysts at ING, echoed Bloomberg's positive stance by writing in a note that although China's poor economic performance was contributing to analytical worries, "the market is nearing oversold territory and we still believe that the fundamentals support prices moving higher from current levels over the remainder of the third quarter on the back of a deficit environment."