Drawdowns Cause Oil To Jump, But Lower Demand Is Imminent, Analyst Warns

Meanwhile, OPEC delays output increases for two months: File Image/Pixabay

As is frequently the case with inventory movement, a large crude drawdown in the U.S. calmed the chronic demand fears of oil traders on Thursday, to the extent that two key benchmarks reversed their trajectory and posted gains.

Trading was also said to have been spurred by the Organization of the Petroleum Exporting Countries (OPEC) making the decision to delay plans to unwind its production cuts next month and in November.

Investment banking firm Jefferies predicted this strategy would tighten fourth quarter balances by about 100,000-200,000 barrels per day (bpd) – enough to prevent stockpile builds even if demand from China didn't improve.

As of 1519 GMT, Brent rose 89 cents to $73.59 per barrel, and West Texas Intermediate climbed 94 cents to $70.14.

Andy Lipow, president of Lipow Oil Associates, told media on Thursday, "There's a number of factors that are really working against OPEC over the next few months; they want to see Brent crude oil prices at $85 to $90 per barrel to balance their budgets."

Meanwhile, the U.S. Energy Information Administration reported that stockpiles declined by 6.9 million barrels during the week ended Aug. 30., far greater than expectations for a 1 million barrel draw but also comparable to the 7.4 million barrel draw earlier calculated by the American Petroleum Institute.

While these developments were generally regarded as positive, Lipow warned that, "We're going into a lower demand period as far as the consumer goes and to top that off we're going into the seasonal refining maintenance period in the United States and Europe that is going to decrease crude oil demand."

As for the fine details of upcoming trading, Daniel Ghali, a commodity strategist at TD Securities, said "It won't take much to spark some CTA short-covering activity over the coming week, but the scale of buying activity is expected to be modest at best; this bodes well for a near-term bounce in prices, but downside pressures continue to grow in the medium-term."