Tightness Returns To The Spotlight As Oil Briefly Touches Multi-Month Highs

Meanwhile, the Black Sea tensions may dictate trading ahead: File Image/Pixabay

Oil trading on Wednesday saw investors maintain their tenuous appreciation for bullish news, with a major draw of U.S. crude stockpiles and tighter supply globally cited as reasons for two key benchmarks rising the most since January – albeit briefly.

Earlier in the session, Brent touched touched $87.65 per barrel, its highest since Jan. 27, and West Texas Intermediate touched $84.65, its highest level since November 2022.

The benchmarks by 1633 GMT were up 44 cents and 39 cents respectively.

As usual, the Energy Information Administration offered a mixed bag of data on Wednesday, with traders preferring to focus on a 2.7 million barrel draw last week as well as a distillate draw of 1.7 million – instead of a higher-than-expected 5.85 million barrel build in U.S. crude stocks after a record drawdown the week before.

Saudi Arabia's vow to extended voluntary production cut of 1 million barrels per day (bpd) for another month and Russia recently stating it would cut oil exports by 300,000 bpd in September also supported prices on Wednesday.

Giovanni Staunovo, an analyst at UBS Group, said, "The demand-concern narrative is not a topic today as product inventories are low; it is more a market-tightness narrative that is driving oil."

That narrative was exacerbated by concerns over the Black Sea, specifically, drone attacks on an oil tanker over the weekend and Ukraine president Volodymyr Zelenskiy saying his country would retaliate to prevent Russia from "blocking our waters."

Another indicator of market tightness was the surge on Wednesday of the nearest timespread for WTI and Brent equivalent; stockpiles at the key storage hub of Cushing, Oklahoma, have declined for five of the past six weeks.

Capping this was a Platts survey released on Wednesday by S&P Global Commodity Insights showing that the Organization of the Petroleum Exporting Countries' (OPEC) oil production from its 13 members was 27.34 million bpd in July, down by 890,000 bpd compared to June.

The output of OPEC allies was 13.06 million bpd, basically flat month on month, and the alliance's output overall for July was its lowest since August of 2021.

S&P stated, "With many parts of the global economy now on a wobbly footing, the OPEC+ alliance has returned to a strategy of aggressive supply restraint to support slumping oil prices, with several members announcing 1.2 million b/d in collective cuts from May through the end of the year."