By Barani Krishnan
Investing.com – Can it happen again? Well, at least some in the market are betting on another outsize weekly crude draw. That, combined with positive Chinese economic data, sent oil prices rocketing Wednesday to continue the market’s recent volatile trend.
New York-traded West Texas Intermediate crude settled up $2.32, or 4.3%, at $56.26 per barrel as activity in China's services sector expanded in August at the fastest pace in three months. That boosted the No. 2 economy, which has been struggling to reverse a prolonged slump in its manufacturing sector. On Tuesday, WTI settled down 2%.
London-traded Brent crude, the benchmark for oil outside of the U.S., cracked the key $60 per barrel resistance level, gaining $2.40, or 4.1%, to $60.66 after Hong Kong leader Carrie Lam withdrew a controversial extradition bill. Her decision lifted sentiment across Chinese markets as well. Brent slid 0.7% in the previous session.
Conflicting drivers for real and implied oil demand have led to huge market swings in recent weeks. Last week, particularly, WTI opened the first session 1% down, then rallied about 2% or more on each of the following three days before plunging almost 3% as the weekend loomed. The end result: an almost 2% gain on the week and a 6% drop on the month, the worst monthly performance since May.
Analysts were predicting Wednesday the U.S. Energy Information Administration will report a crude stockpile draw-down of 3.5 million barrels for the week ended Aug 30 – the last big wave of fuel consumption anticipated ahead of the Sept 2 Labor Day holiday that unofficially marked the end of the summer driving period in the U.S.
In the previous week to Aug 23, the EIA reported a 10 million-barrel draw – five times more than predicted by analysts, and stunning both oil bears and bulls.
Before the Aug. 30 EIA report, due Thursday, the market will have a chance to peruse first-inventory data due at 4:30 PM ET from the American Petroleum Institute, which will present traders with a snapshot of what the government is likely to announce as stockpile balances for last week.
Historically, the API and EIA have often diverged in their numbers. In recent months though, they haven’t been too far apart. Case in point was last week, when the API snapshot indicated a 11 million-barrel crude draw, versus the 10 million-barrel drop reported by the EIA later.
Crude draws typically thin out from the start of September. But past data has also shown there is a possibility for them to remain strong for a while. For instance, in the penultimate week of August 2018, the EIA reported a draw-down of 5.8 million barrels. In the following four weeks, U.S. stockpiles continued to see declines, losing a cumulative 14.2 million barrels.
Hence, anticipation was building again among longs in the market on Wednesday for another outsize draw report from the API.
“Talk on U.S. (crude) inventories are generally supportive, with imports into PADD3 expected to stay low,” ICAP energy futures broker Scott Shelton said, referring to oil storage in the U.S. Gulf Coast region.
He also predicted that U.S. crude exports, the outlier recently in weekly EIA data, would remain at the key 3 million barrels per day level, and possibly increase through the rest of September.