Oil Rallies On U.S. Drawdown, But Shale Executives Downgrade Crude For Year-End

Meanwhile, a Baltic Sea calamity adds to analytical concerns: File Image/Pixabay

News that U.S. crude stockpiles fell last week for the first time in a month stoked near-term supply concerns that had rekindled in the previous session due to Hurricane Ian and caused oil prices on Wednesday to rise by the most in a single day since mid-July.

West Texas Intermediate for November delivery climbed $3.65 to settle at $82.15 per barrel, while Brent for November settlement added $3.05 to settle at $89.32 per barrel.

Crude was also supported by a host of factors, one being the European Union announcing a new round of sanctions against Russia.

Also, three ruptured pipelines in the Baltic Sea caused Dennis Kissler, senior vice president at Bok Financial Securities, to state that "The damage to Nord Stream is very concerning both from a supply issue and a political issue in that it assures supply from Russia is not reliable.

"It raises concerns that all energy prices are vulnerable to price spikes if we see an early start to a harsh winter."

Support also came in the form of a weaker U.S. dollar as well as China's top refiners reportedly expecting a better economy in the winter, following two years of repressed growth due to the country's zero tolerance Covid policy.

As for the U.S. stockpile drop, that amounted to 215,000 barrels, according to the Energy Information Administration; this was accompanied by West Coast gasoline stockpiles falling to their lowest in 10 years and New England's distillate stocks falling to an all-time low for this time of year.

Still, the prospect of recession continues to weigh heavily on insiders: according to the latest energy survey by the Federal Reserve Bank of Dallas, shale executives are planning for WTI to fall in the $80 range, compared to the previous quarter when they believed crude would end the year above $100.

One survey respondent said, "The probability of a worldwide economic recession is casting a long shadow on the demand for oil that is offset by the Russia‒Ukraine conflict.

"The unknown outcome of the upcoming midterm elections in the U.S. creates a lot of anxiety in the oil community; our investment in new projects will await greater clarity of the road ahead."

Even the most optimistic of analysts conceded that the road ahead for crude will hardly be smooth: Rebecca Babin, senior energy trader at CIBC Private Wealth, told media with regards to Wednesday's trading that "I do think we are bottoming, but it is going to continue to be exceptionally volatile, and continue to be keeping easy speculative money away from this market."