Crude up Again Amid Drop in U.S. Stocks and Indifference to Saudi Export Cut Rumours

US crude stocks reduced despite a rise in U.S. production, according to the Energy Information Administration. File Image / CC0 / Pixabay

What a difference a day makes in the volatile crude market: while a report of a rise in stockpiles dampened Tuesday's gains, oil on Wednesday rose 1.6 percent to a 6 week high after the Energy Information Administration revealed a bigger weekly draw than forecast.

Another factor that swayed Tuesday's market - the hope that Saudi Arabia would deepen its cuts under the Organization of the Petroleum Exporting Countries' (OPEC) output reduction initiative - may be playing less of a role in influencing traders than originally thought: "The oil market seems to have grown immune to news about OPEC output cuts, meaning supply-side stories that normally affect prices aren't having as much impact now," said Gao Jian, an analyst with SCI99.

West Texas Intermediate on Wednesday settled up 72 cents to $47.12 per barrel while Brent climbed 84 cents to $49.68 per barrel, following EIA data that U.S. crude stocks fell 4.7 million barrels during the week ended July 14.; this exceeded esitmates by Reuters of a 3.2 million draw.

Also, distillate stocks decreased 2.1 million barrels and gasoline stocks declined 4.4 million barrels, compared to forecasts of 1.2 million and 0.7 million barrels respectively.

The EIA notes that the draws are significant because they come even though U.S. production climbed to 9.43 million barrels per day (bpd), its highest since July 2015, and Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics, noted that this "poses serious questions on the effectiveness of the output cut deal agreed upon by OPEC and some non-OPEC countries."

However, globally, there's still plenty of trouble brewing for crude: China, which earlier this week was seen as a bright spot for producers due to its improving economy, will average a 95,000 bpd demand growth this year, far below gains of as much as 290,000 bpd two years prior, according to the EIA; also, passenger vehicle sales in the first half dropped fo the first time in 13 years, due to the rise of shared bicycles and natural gas-fired cars.

This leaves OPEC with little to do other than reassure its dwindling audience that it will do what it takes to counter full-out production by non-complying members: "We hope to accommodate the rise in production from Libya and Nigeria taking into consideration other supply adjustments as well, but we emphasize that we have to work together with other producers and with the two countries," said a Saudi Arabian industry source.

As for the persistent rumour that the Saudi's might cut production by a further 1 million bpd, Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, said, "the Saudis are merely considering further export cuts, but this hasn't materialized yet and what we do have hard data on shows that Nigerian and Libyan exports are up, in defiance of expectations."

The most that can be said of the state of the crude market moving forward is that a muted type of bullishness could prevail: earlier this week Essner remarked that investors are "starting to see, not necessarily full conviction, but a little more optimism about some of the developments in the market, even though the overall tone is clearly still bearish - it's kind of going from bad to a little less bad."