By Barani Krishnan
Investing.com - The volatility in oil is continuing to overwhelm the average investor, with the market rallying more than 2% Thursday on strong U.S. crude drawdown numbers and optimism over the impending restart of U.S.-China trade talks, before settling almost flat on profit-taking.
New York-traded West Texas Intermediate crude settled up 4 cents at $56.30 per barrel. It jumped as much as $1.46, or 2.6%, earlier after the Energy Information Administration said crude inventories fell by 4.8 million barrels for the week ended Aug 30. That was almost double the 2.5 million draw predicted by analysts tracked by Investing.com. The American Petroleum Institute, the industry group, had suggested an inventory build of 400,00 barrels instead.
London-traded Brent, the benchmark for oil outside of the U.S., closed up 25 cents, or 0.4%, at $60.95 per barrel, remaining above the key $60 per barrel level. Brent had gained as much as $2.37, or 4%, earlier.
Both WTI and Brent gained more than 4% each in the previous session, extending into September the remarkable volatility seen through August. Year to date, the U.S. crude benchmark is up 24%, while its U.K. peer has gained about 13%.
“It’s just profit-taking, if you ask me,” said John Kilduff, founding partner at New York-based energy hedge fund Again Capital. “We went up too much, too fast yesterday, and there was a need to correct today, notwithstanding the good draw numbers and the mumbo-jumbo about trade talks restarting.”
The weekly EIA report was one of the better ones for oil market sentiment.
Matt Smith, who tracks crude oil cargoes for New York-based Clipperdata, noted that along with the higher-than-expected drop in gasoline stockpiles and surprise decline in distillate inventories, “exports were holding above 3 million barrels per day for a second week - a hat-tip to Permian pipelines”.
But the volatility in oil has also overwhelming, making it hard for the average investor to accurately make a call on prices.
Some also remain skeptical over oil’s ability to rise above fears of a global recession and the related U.S.-China trade war.
According to news reports on Thursday, the two countries agreed over the phone to continue talks, with the Chinese Commerce Ministry and U.S. Trade Representative's Office confirming the development. No terms were, however, given.
In the past, markets from stocks to oil have rallied on expectations that the talks would lead to a trade deal, only to discover more tit-for-tat tariffs emerging.
On Sunday, Washington began imposing 15% tariffs on an array of Chinese imports, while China began placing duties on U.S. crude.
The United States also plans to increase to 30% from Oct. 1 the 25% duty placed on $250 billion worth of Chinese imports.
Adding to the U.S. rhetoric, President Donald Trump has warned that he’ll be tougher on Beijing in his second term -- which he must win first in 2020. Beijing, in response, said it has lodged a complaint against the United States at the World Trade Organization.
“We feel the energy markets will stay strong, but further gains from here in the days and weeks to come will be hard to build on, given the history of flip-flops by both sides in reaching a deal,” said Tariq Zahir, managing member of the oil-focused Tyche Capital Advisors fund in New York.