Investing.com – Oil prices jumped nearly 2% on Wednesday after data showing unexpectedly high consumption of U.S. gasoline and diesel last week threw a lifeline to a market battered by a near-5% selloff in the previous session.
Despite the rebound, the promise of more crude production in coming weeks by top crude exporter Saudi Arabia continues to loom over market sentiment, some analysts said.
A global risk-off environment that hit world equity markets again on Wednesday could also limit the recovery in oil, other market participants said.
“We see the risk-off posture in equities spilling over into the energy markets eventually,” said Tariq Zahir, managing member at Tyche Capital Advisors, an oil-focused fund in New York.
U.S. crude was up $1.15, or 1.7%, at $67.58 per barrel by 12:36 PM ET (16:36 GMT). Its U.K. and international peer rose 90 cents, or 1.2%, to $77.34.
Both benchmarks slumped more than 4% on Tuesday, their most since July, after top oil exporter Saudi Arabia pledged to pump as much crude as necessary to ensure minimum supply disruptions to the market from U.S. sanctions on Iranian oil exports beginning Nov. 4.
The Saudi promise, announced by its Energy Minister Khalid al-Falih, essentially abandons the kingdom’s commitment to OPEC’s production-cutting policy that helped oil prices recover from the oil glut of the past three years that erased nearly 75% of the market’s value.
While Falih’s words still hung over Wednesday’s market, traders’ attention was drawn instead toward weekly U.S. supply-demand data on oil.
The U.S. Energy Information Administration (EIA) reported that in the country rose by 6.35 million barrels in the week to Oct. 19, almost double analysts’ forecasts for a build of 3.69 million. It was the latest in five-straight weeks of builds that have added about 25 million barrels more of crude to U.S. stockpiles than expected by the market.
While the headline number reported by the EIA itself was bearish, traders took more note of , which fell by 4.83 million barrels, compared to expectations for a draw of 1.88 million barrels. , which represent diesel and heating oil, meanwhile, decreased by 2.26 million barrels, compared with forecasts for a drop of 1.93 million.
“A solid draw to gasoline and distillate inventories have offset the bearish influence of a fifth-consecutive build to crude stocks,” said Matthew Smith, analyst at Clipper Data, a New York-based tracker of crude cargoes.
Higher drawdown in oil products are common at this time of year when U.S. refiners do seasonal maintenance work on their plants. The EIA reported that refinery runs for last week were still at under 90% of capacity.
Even so, the outsize fall in the gasoline and distillate numbers was being read as “a pop in implied demand,” said Clipper Data’s Smith.
Some, however, noted that WTI’s contango structure, where front-month December traded at a discount of 20 cents to January, would encourage more stockpiling of crude as merchants tried to store oil instead of delivering it promptly to capitalize on a higher return later.
“This will encourage builds in the weeks to come especially since we always see weaker demand in the fourth quarter,” Tyche Capital’s Zahir said.
Source: Investing.com
