HOUSTON: Oil edged marginally higher after hitting a six-month low earlier on Wednesday, as markets weighed a steeper-than-expected draw down in U.S. crude inventories against rising output and exports from Russia.
U.S. crude stocks fell by 7.1 million barrels in the week to August 12 to 425 million barrels, according to data from the Energy Information Administration (EIA), compared with analysts’ expectations in a Reuters poll for a 275,000-barrel drop.
Brent crude rose 72 cents, or 0.7%, to $92.96 per barrel by 1108 a.m. ET (1508 GMT), after spiking more than $2 immediately after EIA data was released. Earlier in the day, recession worries had pushed benchmark prices to its lowest since February at $91.51. U.S. West Texas Intermediate (WTI) crude rose $2.03 cents, or 2.3%, to $88.46.
U.S crude exports hit 5 million barrels per day, the highest on record, according to EIA data, as WTI has traded at steep discount to Brent, making purchases of U.S. crude ore attractive to foreign buyers. In a sign of strong demand, gasoline stocks also drew 4.6 million barrels, much higher than the expected 1.1 million barrel draw.
“It was expected to be a friendly report and it was pretty much across the board. Some of those demand destruction concerns that the market was going through seem to be alleviated a little bit,” said Phil Flynn, an analyst at Price Futures group.
The American Petroleum Institute on Tuesday had flagged a 448,000 barrel draw in crude stocks and 4.5 million barrels in gasoline inventories, according to sources.
Oil has soared in 2022, coming close to an all-time high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns.
However, Russia has started to gradually increase its oil production after sanctions-related curbs and as Asian buyers have increased purchases, leading Moscow to increase its forecasts for output and exports until the end of 2025, an economy ministry document seen by Reuters showed.
Russia’s earnings from energy exports are expected to rise 38% this year partly due to higher oil export volumes, according to the document, in a sign that supply from the country has not been impacted as much as markets originally expected.
The prospect of recession has also more recently weighed on oil prices. British consumer price inflation jumped to 10.1% in July, its highest since February 1982, intensifying a squeeze on households, and pushing oil prices lower earlier in the day.
“There are growing downside risks as a result of the growth outlook and ongoing uncertainty around Chinese COVID restrictions,” said Craig Erlam of brokerage OANDA.
An exodus of participants, especially hedge funds and speculators, has made daily price swings far greater than in previous years.
On the oil supply front, the market is awaiting developments from talks to revive Iran’s 2015 nuclear deal with world powers, which could eventually lead to a boost in Iranian oil exports if a deal is reached.
The European Union and United States said on Tuesday they were studying Iran’s response to what the EU has called its “final” proposal to save the deal.
Analysts at Goldman Sachs said a return of Iranian crude supply would reduce their 2023 forecast by $5-10 per barrel from $125 per barrel.