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Oil Rallies on Bigger-Than-Expected Decline in Inventories

August 22, 2018 at 15:05 by Andrew Moran

Crude oil prices are surging midweek after the US government reported a larger-than-expected decrease in domestic stockpiles. Oil also received a boost from a weaker US dollar and reports that Iran will export less oil in the aftermath of Washington’s newest sanctions.

October West Texas Intermediate (WTI) crude futures spiked $1.33, or 2.19%, to $67.27 per barrel at 15:40 GMT on Wednesday on the New York Mercantile Exchange. US crude prices have rallied in recent days, climbing nearly 5% in the last week.

Brent, the international benchmark for oil prices, is also rallying midweek. September Brent crude futures rose $1.10, or 1.51%, to $73.82 a barrel on London’s ICE Futures exchange.

According to the US Energy Information Administration (EIA), domestic crude oil inventories slumped 5.8 million barrels for the week ending August 17, beating the market forecast of a 1.5 million decline. Gasoline stockpiles rose 1.2 million barrels, while distillate supplies edged up 1.8 million barrels.

The Baker Hughes oil rig count stood at 1,057, unchanged from the previous week.

Crude prices gained support from a weaker greenback as the US dollar slid 0.06% to 95.16. The currency has taken a beating this week after President Donald Trump slammed the Federal Reserve for raising interest rates five times since he took office. A lower buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to buy.

Although the trade spat between the world’s two largest economies have not impacted global oil prices, an escalating trade war could rattle international markets and amplify China’s economic slowdown, something that could hurt oil demand. Investors will keep an eye on a meeting between a delegation of US and Chinese officials in Washington this month, hoping that an agreement can be reached and concessions can be made on both sides of the table.

The global oil market may witness fewer production volumes as it is believed Iran will export less oil in the fallout of the US government’s new sanctions. Many European oil businesses have already begun to reduce their Iranian purchases. But China is not backing down, transitioning their cargoes to vessels owned by Iran to ensure supplies continue to flow.

Despite members taking a more cautious approach to returning to normal production capacities, the Organization for Petroleum Exporting Countries (OPEC) has renewed supply efforts after striking a deal with Russia and other oil-rich allies.

In other energy markets, October natural gas futures shed $0.01, or 0.34%, to $2.954 per million British thermal units (btu). October gasoline futures advanced $0.043, or 2.27%, to $1.954 a gallon. October heating oil futures jumped $0.041, or 1.96%, to $2.169 per gallon.

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