U.S. Crude Draw Buoys Sentiment Following Beryl's Demise

But hopes for a reduction in interest rates from the Fed were dashed: File Image/Pixabay

Oil trading sentiment reversed course somewhat on Wednesday as reports of a substantial crude inventory draw in the U.S. rekindled the notion that demand may not be as challenged as some pundits had thought.

Brent settled up 42 cents at $85.08 per barrel and West Texas Intermediate settled up 69 cents at $82.10 per barrel after the Energy Information Administration reported inventories falling by 3.4 million barrels to 445.1 million barrels in the week ended July 5, compared to expectations for a 1.3 million barrel draw.

Also, gasoline stocks fell by 2 million barrels in the week to 229.7 million barrels, compared with expectations in for a 0.6 million barrel draw; however, distillate stockpiles, which include diesel and heating oil, rose by 4.9 million barrels in the week to 124.6 million barrels, versus expectations for a 0.8 million barrel rise.

Brian Kessens, a managing director at Tortoise Capital Advisors, said, "This summer was expected to be a pretty good driving season, and it seems to be playing out that way."

While modest, Wednesday's gains compensated  for three straight previous sessions of losses incurred partly due to Hurricane Beryl not living up to its media hype and sparing the Texas energy industry any infrastructure damage.

Another bubble of analytical expectations was burst on Wednesday when Federal Reserve chair Jerome Powell said although the U.S. was on a path to stable prices and continued low unemployment, he was not yet ready to declare inflation beaten – and therefore interest rate reductions were premature.

Also on Wednesday, investors were said to be fatigued over the ceasefire talks regarding Israel and Hamas: Tim Snyder, economist at Matador Economics, remarked, "We see news stories out there that are having little impact on the market, which means the market is discounting those."

Meanwhile in China, data underscored the nation's economic challenges, with deflationary pressures persisting as factory-gate prices fell, and following signals suggesting diminished appetite for crude from some refiners.

Bloomberg noted, "Crude's recent listless trading has seen gauges of volatility decline; Brent's implied volatility — a forecast of likely movement in oil futures that's tied to options pricing — is near the lowest level in about six years."

Finally, it wouldn't be a trading session without crystal ball gazing into the crude market's future, and this was provided on Wednesday by BP in its latest edition of its annual Energy Outlook.

The publication predicted that oil demand will peak by 2025 at around 102 million barrels per day (bpd) under two scenarios, one based on the market's current trajectory, and the other assuming that the world will stick to the 2015 Paris climate agreement to cut carbon emissions by around 95 percent by 2050.