Oil Jumps As Hawkish Trump, Russia Infrastructure Damage Stoke Tightness Fears

Meanwhile, analysts expect OPEC to keep output steady on Sunday: File Image/Pixabay

U.S. president Donald Trump's tough stance against Russia was credited for oil on Wednesday extending its gains for a second straight session, this time to a seven week high of over 2 percent.

Also aiding the commodity was a "surprise" U.S. stockpile draw, which was said to cause traders previously obsessed with worrying over global oversupply to shift gears and fret about supply tightness.

Brent settled up $1.68, or 2.5 percent, at $69.31 per barrel, while West Texas Intermediate settled up $1.58, also 2.5 percent, at $64.99.

Instead of logging increases as many analysts had predicted, the Energy Information Administration reported that U.S. crude inventories fell by 607,000 barrels last week; gasoline and distillate inventories also experienced declines.

As for Trump, on Wednesday he continued to impress the hawks after saying NATO nations should shoot down Russian aircraft that violated their airspace.

Also contributing to new-found concerns about supply was traders and retailers telling media that Russia was experiencing shortages of certain fuel grades due to Ukraine recently stepping up drone attacks on that country's energy infrastructure.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, said, "Crude continues to march higher today as geopolitical headlines escalate across several regions, while Ukraine's strikes on energy infrastructure are impacting product flows and could eventually spill over into crude exports if unresolved."

Kpler analyst Sumit Ritolia added in a note. "While [infrastructure] repairs are underway, past patterns suggest lasting impacts into October."

However, bearish sentiment continued to percolate on Wednesday thanks to reports that Iraq was finalizing a deal to restart crude exports from its Kurdistan region after a two-year interruption – and pundits worried that this could add about 230,000 barrels per day (bpd) to the international market, exacerbating a perceived glut.

Presumably, the bears were somewhat mollified by reports that key members of the Organization of the Petroleum Exporting Countries (OPEC) will meet on Sunday to discuss production policy: analysts the cartel to leave production targets unchanged in the wake of unwinding 2.2 million bpd of output cuts since April.

Also potentially providing comfort was Wednesday's release of the Dallas Fed's Energy Survey, which revealed that oil and gas activity in the Fed's Eleventh District slipped again in the third quarter.

The Survey further showed that company outlook deteriorated to -17.6; oilfield services weakened, with equipment utilization at -13.0 and prices received for services at -26.1; and operating margins remained deeply negative at -31.8.