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Oil Gains Despite Bigger-Than-Expected Supply Jump

October 24, 2018 at 15:44 by Andrew Moran

Crude oil futures are posting gains midweek after slumping to two-month lows as the US government reported a bigger-than-expected increase in domestic inventories. Geopolitical risk factors appear to be driving crude’s modest rally.

December West Texas Intermediate (WTI) crude oil futures advanced $0.52, or 0.78%, to $66.95 per barrel at 15:15 GMT on Wednesday on the New York Mercantile Exchange. After surging to a multi-year high earlier this month, US crude prices have tumbled nearly 7%, but they are still up 16% year-to-date.

Brent, the international benchmark for oil prices, is trading in the opposite direction. December Brent crude futures dipped $0.03, or 0.04%, to $76.44 a barrel on London’s ICE Futures exchange. Brent crude prices have surged more than 20% in 2018, but they have fallen 5% this month.

According to the US Energy Information Administration (EIA), domestic crude stockpiles climbed by 6.3 million barrels for the week ending October 19, which is higher than the market forecast of 3.3 million barrels. Gasoline supplies slipped 4.8 million barrels, while distillate inventories shed 2.3 million barrels.

The Baker Hughes total rig count stood at 1,067, up from 1,063 last week.

While the EIA report contributed to the trade, geopolitical risks and international demand played a key role. Next month, US sanctions on Iran will go into effect, which will likely send the oil-rich nation’s exports plummeting. This, analysts say, could send crude prices lower heading into 2019. The wild card might be Saudi Arabia, a regime that hinted it could boost production and offset the declines.

Because global economic growth is anticipated to cool over the next year, possibly impacting crude demand, investors are beginning to have supply glut fears. The International Energy Agency (IEA) has already is forecasting slower oil demand growth for 2019.

China, for instance, has seen its economy slow down this year amid its trade dispute with the US. Should the national economy contract any further, then there may be a reduced demand for oil.

In other energy commodities, January natural gas futures dipped $0.01, or 0.48%, to $3.337 per million British thermal units (btu). December gasoline futures were flat at $1.83 a gallon. December heating oil futures fell $0.005, or 0.2%, to $2.245 per gallon.

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