Oil extends march toward $100 a barrel after U.S. crude drawdown

Posted by By News Room 4 Min Read

The U.S. oil benchmark ended at a nearly 13-month high Wednesday after a further decline in domestic crude inventories stoked supply worries.

Price action

  • West Texas Intermediate crude for November delivery
    CL.1,
    +0.86%

    CL00,
    +0.86%

    CLX23,
    +0.86%
    surged $3.29, or 3.6%, to close at $93.68 a barrel on the New York Mercantile Exchange, its highest finish since Aug. 29 and its largest one-day percentage gain since May 5.

  • November Brent,
    BRNX23,
    +0.67%,
    the global benchmark, settled at $96.55 a barrel, up $2.59, or 2.8%, for its highest finish since Nov. 7.

  • October gasoline
    RBV23,
    +0.65%
    rose 1.4% to $2.599 a gallon, while October heating oil
    HOV23,
    +0.14%
    gained 2.8% to end at $3.315 a gallon.

  • October natural gas
    NGV23,
    +4.33%
    jumped 4.1%, ending at $2.764 per million British thermal units.

Market drivers

The Energy Information Administration on Wednesday said U.S. crude inventories fell 2.2 million barrels last week, while gasoline inventories rose 1 million barrels and distillate stocks increased by 400,000 barrels.

Crude at Cushing, Oklahoma, the delivery hub for Nymex WTI futures, fell 900,000 barrels to 22 million. The analysts expected Cushing to see a 1 million barrel draw in crude supplies. Tight inventories at Cushing have been cited as an added factor in WTI’s rally and in driving the market into backwardation — a phenomenon in which nearby futures contracts trade higher than deferred contracts, reflecting tight supply.

“Storage has not fallen below 20 million barrels since 2014. There is talk in the energy space that low pressure at Cushing from historically low storage, could cause operational difficulties at the country’s largest storage facility,” said Robert Yawger, executive director for energy futures at Mizuho Securities, in a note.

Analysts surveyed by S&P Global Commodity Insights, on average, had expected U.S. crude stocks to show a fall of 2.2 million barrels, with gasoline down 800,000 barrels and distillate stocks down 1.1 million barrels.

The November WTI contract’s premium over the December contract
CLZ23,
+0.74%
widened sharply to around $2.40.

Crude rebounded from early weakness Tuesday to finish higher, despite pressure on other assets perceived as risky that saw the Dow Jones Industrial Average
DJIA
post its biggest one-day fall since March as it and the S&P 500
SPX
posted their lowest finish since early June. Stocks were under continued pressure on Wednesday. Crude also remained firm despite further strength in the U.S. currency, with the ICE U.S. Dollar Index
DXY
rising Wednesday to its highest since Nov. 30.

Brent crude, meanwhile, “is now just over a few dollars away from the $100 price level, which could see further momentum buying if global leaders don’t do anything to try to jawbone prices down,” said Edward Moya, senior market analyst at Oanda, in a note.

“The Biden administration will undoubtedly want lower energy prices given we are just over a year from the presidential election, but tapping the low levels from the SPR (Strategic Petroleum Reserve) will only provide temporary relief,” he wrote.

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