U.S West Texas Intermediate and international-benchmark Brent crude oil futures finished sharply higher last week, driven by huge inventory draws as reported by the American Petroleum Institute and the U.S. Energy Information Administration. Buyers also reacted positively to Saudi Arabia’s plan to cut exports.
September West Texas Intermediate crude oil settled at $49.71, up $3.94 or +8.61% and international-benchmark October Brent crude oil finished the week at $52.22, up $0.73 or +1.42%.
Early in the week, industry group the American Petroleum Institute reported U.S. crude stockpiles fell by 10.2 million barrels the week-ending July 21.
On Wednesday, the U.S. Energy Information Administration reported a 7.2 million barrel drop in inventories last week. Investors were looking for a 3.3 million barrel draw. The draw was the fourth consecutive drop, indicating a trend and giving support to the market.
Gasoline inventories fell by 1 million barrels. Analysts were looking for a 614,000-barrel drop. Distillate stockpiles declined by 1.9 million barrels, versus expectations for a 453,000-barrel drawdown.
Also last week, bullish investors raised the idea that the long-awaited rebalancing was taking place in the oil market and at a much faster pace than expected. They are basing this on the rally on Saudi Arabia’s decision to limit oil exports to 6.6 million barrels per day (bpd) in August, and the four weeks of drawdowns in U.S. oil stocks.
Traders are also saying the combination of higher exports from the United States, a marginal decline in oil output and a rise in refinery utilization rate were also behind the price rise. Some have also added the geopolitical risk in Venezuela to the bullish side of the equation.
There are also skeptics out there who believe the upside will be limited because the U.S. crude and gasoline stock piles remain above their five-year averages.
In other news, U.S. shale producers including Hess Corp., Anadarko Petroleum and Whiting Petroleum this week announced plans to cut spending this year as a result of low oil prices.
Forecast
Despite this news, investors still want to see proof that the spending cuts will have a significant impact on U.S. production. They feel that the upside may be limited because the recent surge in prices may actually encourage more output, particularly from U.S. shale producers with low costs.
We could see a lower start to the week because according to Baker Hughes, the number of active U.S. rigs drilling for oil climbed by 2 to 766 rigs last week. The total active U.S. rig count, which includes oil and natural gas rigs, was also up 8 at 958.