Oil Ekes Out Gains But Babin Laments "Low-Conviction Trading Action"

Other analysts view upcoming oil trading as rudderless: File Image/Pixabay

Familiar crude trading patterns were maintained on Thursday, with oil edging higher thanks to a recent disappointing draw of U.S. inventories and a somewhat downgraded demand outlook, counterbalanced by strong crude imports from China. 

Brent for September delivery climbed 18 cents to settle at $79.64 per barrel, while West Texas Intermediate for August delivery gained 28 cents to settle at $75.63 per barrel; the more active September WTI settled 36 cents higher at $75.65.

In the previous session, the U.S. inventory drop was less than the 2.4 million barrel decline that analysts had expected: the Energy Information Administration reported a 708,000 barrel fall last week to 457.4 million barrels.

Bob Yawger, director of energy futures at Mizuho, said, “It wasn’t a huge draw that some in the market were hoping for, and that’s partially because gasoline demand is lower than it could be for this time of year.”

Citi analysts added that demand is "a mixed picture with stronger gasoline and jet fuel demand, but weaker petchems and diesel," and they predicted that crude prices will struggle to find a direction over the next few weeks.

Expressing a variation of the same theme, Rebecca Babin, a senior energy trader at CIBC Private Wealth, pointed out that “Open interest has dropped precipitously this week, reflecting the low-conviction trading action and reinforcing the view that systematic traders continue to be in control of price action.”

This was in sharp contrast to a comment made by Ed Moya, senior market analyst at OANDA, in the previous session: “Brent crude looks like it wants to find a home above the $80 level and that shouldn’t be too hard as long as the crude demand outlook doesn’t get blindsided.”

In other oil related news on Thursday, Financial Times estimates based on customs data showed that during the first half of 2023, Chinese imports of Russian crude oil averaged 2.13 million barrels per day (bpd), which helped Russia oust its OPEC partner Saudi Arabia from the top spot as the single biggest supplier to the world’s top crude importer; Saudi imports  averaged 1.88 million bpd between January and June.

Also in June, Chinese imports from Russia averaged 2.56 million bpd, a surge of 44 percent compared to the same month in 2022.