© Reuters. By Barani Krishnan
Investing.com – It is official: OPEC will cut production cuts by 2.1 million barrels per day from August.
But before market bears could voice their totally negative reaction to that, another development came in on Wednesday: hugely successful numbers for weekly US crude draws reported by the Energy Information Administration.
The EIA said it fell 7.5 million barrels for the week ending July 11. Analysts tracked by Investing.com expected a decrease of 2.1 million barrels, after the 5.6 million barrel increase from the previous week.
The massive raffle boosted crude prices by more than 2%.
The New York price, the benchmark for US crude oil futures, was set at 91 cents, or 2.2%, at $ 41.20 a barrel.
Listed in London, the world benchmark for oil, it closed 89 cents, or 2.1%, at $ 43.79.
“Crude prices rose (after) following OPEC + ‘s recommendation to slowly recover some oil supplies, and after the EIA crude inventory report showed a much larger decline and some signs that demand is improving” said Ed Moya, analyst at New OANDA in York.
The improvement in demand reported by the EIA included a reduction of 3.1 million barrels and almost 1.5 million barrels in diesel. Analysts had expected a drop in gasoline stocks of 643,000 barrels and a distillate accumulation of nearly 1.5 million barrels for last week.
And although the consensus forecast for oil extraction was around 2 million barrels, many traders began to set the bar higher after the American Petroleum Institute industrial group issued a snapshot of inventory Tuesday night stating that the decrease could reach 8.2 million. .
One reason for the massive extraction of crude oil: a drop in imports to four-year lows.
The inflow of crude into the United States fell 1.8 million barrels last week, the EIA said, underscoring months of work by OPEC, or precisely Saudi Arabia, to reduce shipments to the United States in order to create Low inventory levels that would increase WTI prices.
“Imports registered the worst weekly drop since 2016, a 25% drop,” Moya said, reflecting on the 1.8 million barrel drop last week. “The oil market continues to move towards equilibrium, but until the demand outlook improves, WTI crude will have a difficult time separating much.”
The decision by OPEC, or the Organization of the Petroleum Exporting Countries, to reduce production cuts from August could affect the prospects for oil demand.
The OPEC + alliance led by Saudi Arabia and assisted by Russia will retain 7.7 million barrels per day from the market in August, compared to cuts of 9.6 million currently.
“As we move to the next phase of the agreement, additional supply resulting from the planned reduction in production cuts will be consumed as demand continues on its recovery path,” said Saudi Arabia’s energy minister, the Prince Abdulaziz bin Salman, at the beginning of an OPEC + video. conference on Wednesday. “Economies around the world are opening up, although this is a cautious and gradual process. The signs of recovery are unmistakable. “
As if he could anticipate that the media would emphasize reducing cuts rather than likely looming demand growth, the Saudi prince implored the press on Wednesday to “report the whole story.”
But regardless of its imploration, a 2 million barrel cut in OPEC cuts could go a long way in denying the weekly U.S. extraction of crude oil, especially if the Saudis begin to ship more of their cargo in heading to the United States, the world’s largest consumer oil.
And the jury does not yet know how the demand for oil could go amid the new wave of coronavirus infections worldwide. In the United States, the virus has infected more than 3.5 million people and killed nearly 140,000, with new records in some US states.
