Oil prices rise as US inventory data reflect robust demand

[August 02, 2023]  By Ahmad Ghaddar

LONDON (Reuters) - Oil prices surged on Wednesday, trading near their highest levels since April, buoyed by crude and fuel product inventory data showing robust U.S. demand.

Brent crude futures for October were up 44 cents, or 0.5%, to $85.35 a barrel by 0949 GMT. U.S. West Texas Intermediate crude for September climbed 48 cents, or 0.6%, to $81.85 a barrel.

U.S. crude inventories fell by 15.4 million barrels in the week ended July 28, according to market sources citing American Petroleum Institute figures, compared with analysts' estimates for a drop of 1.37 million barrels.

If the U.S. government figures, due later on Wednesday, match the API drawdown number, it would mark the largest drop in U.S. crude inventories according to records dating back to 1982.

Gasoline inventories fell by 1.7 million barrels, the API data showed, compared with estimates for a 1.3 million barrel drop. Distillate stocks fell by 510,000 barrels, compared with analysts estimates for a build of 112,000 barrels. Both are indicators of robust prompt fuel demand in the U.S.

"For most of the last two weeks it has been to products that oil has looked for its forward leanings, but the overnight remarkable draws in the API data sees crude take over the bull baton and give the market another spurring on," PVM Oil analysts said.

Crude oil inventories have also begun to drop in other regions as demand outpaces supply, which has been constrained by deep production cuts from Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), that has provided price support.

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo

Analysts expect Saudi Arabia to extend its voluntary oil output cut of 1 million barrels per day (bpd) for another month to include September in a meeting of producers on Friday.

OPEC+, which groups OPEC and allies led by Russia, is unlikely to tweak its current oil output policy when a panel meets on Friday, six OPEC+ sources told Reuters, as tighter supplies and resilient demand drive an oil price rally.

Concerns that oil buying in China, the world's biggest oil importer, may slow as prices rise. Weak PMI data released this week indicated fuel demand may be weaker than expected.

"Chinese crude buying has been opportunistic rather than due to higher demand. (The) market continues to be driven purely by supply constraints, which are always subject to potential political volatility," said Sparta Commodities' Philip Jones-Lux.

(Additional reporting by Trixie Yap in Singapore; editing by Jason Neely)

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