Investing.com – Oil prices jumped as much as 5% on Friday, reaching nearly $70 per barrel on the killing of Iran’s top general, before coming off their peaks despite weekly U.S. inventory data showing a huge drop in domestic crude stockpiles.
While the 11.5-million-barrel drop in U.S.crude inventories reported for the week ended Dec. 27 was nearly four times more than forecast, it was offset almost perfectly by the total rise in gasoline stockpiles and distillates inventories. The inclination of crude prices was to retreat, rather than continue rising, on those numbers.
West Texas Intermediate (WTI), the U.S. crude benchmark, settled up $1.87, or 3.1%, at $63.05 per barrel. Earlier in the session, WTI reached an eight-month high of $64.08.
Brent, the global oil benchmark, settled up $2.35, or 3.5%, at $68.60. It hit $69.48 earlier. The last time Brent came close to matching $70 per barrel was in the aftermath of the mid-September attack on Saudi Arabia’s oil facilities, an aggression that the United States had accused Iran of masterminding.
Brent, the global oil benchmark, rose $1.94, or 2.9%, to $68.19. It hit $69.48 earlier. The last time Brent came close to matching $70 per barrel was in the aftermath of the mid-September attack on Saudi Arabia’s oil facilities, an aggression that the United States had accused Iran of masterminding.
Friday’s rally came on the back of the U.S. airstrike near the Baghdad airport that killed Qassem Soleimani, the commander who led Iran’s Revolutionary Guards’ Quds force. Tehran has vowed to avenge his death, sparking fears of what an all-out Iran-U.S. conflict could do to the movement of crude in the world’s most prolific production hub for oil.
“On the surface of it, this is escalation, this is war, that should give oil the huge geopolitical premium that the bulls have been clamoring for for years now,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.
“Yet until we see Iran’s response, it would be wise for the market to play this evenly as we’ve already gone up massively since last month on the flat price of oil," Kilduff said. "Any further gain would require substantive fundamentals-backing as the general expectation for this year is that oil supplies would go up from more U.S. drilling.”
Oil prices closed 2019 with their largest gains in three years. Brent rose 24% on the year while West Texas Intermediate gained 34%, largely on production cuts by OPEC kingpin Saudi Arabia and its top ally Russia.
But OPEC+’s promises to cut even more supplies this year has been tempered by expectations that U.S. crude production could rise strongly in 2020 responding to last year’s price gains.
Non-OPEC oil supply, led by U.S. shale, is forecast to grow by 2.1 million barrels a day in 2020, according to the Paris-based International Energy Agency (IEA).
Global demand for oil, meanwhile, is set to increase by 1.2 million barrels a day next year, the IEA said.
While U.S. crude production as a whole hit a record high of 12.9 million barrels per day in 2019, shale oil output — which accounts for more than half of U.S. total production — has been somewhat restrained this year. U.S. crude producers as a whole cut the number of actively operating oil rigs in the country to 677 last year from 885 at the end of 2018, a drop of 208 rigs or 24%.
In Friday’s trade, crude prices came off their highs after the U.S. Energy Information Administration (EIA) reported that crude stockpiles fell by 11.5 million barrels last week, compared with expectations from analysts for a drop of 3.3 million barrels.
But the EIA also reported that gasoline stockpiles rose by 3.2 million barrels, versus an expectation for a rise of 1.8 million barrels.
And distillates inventories jumped by a whopping 8.8 million barrels, compared with forecasts for a climb of 1.1 million, the EIA said.
“The drop in crude stocks was almost perfectly offset by the commensurate rise in gasoline and distillate inventories reported by the EIA,” Barani Krishnan, senior commodities analyst at Investing.com, said. “Despite the huge headline draw number, one can argue that this is a flat inventory report.”
Any bullish aspect of the report, Krishnan pointed out, would be in U.S. crude exports, which rose by 1.06 million barrels per day last week to reach a record of 4.46 million bpd.