Oil futures rose on Wednesday, with US crude outpacing Brent, after oil stockpiles in the United States fell more than expected. The US Energy Information Administration said US crude stocks fell by 4 million barrels last week, while gasoline and distillate stocks rose. Crude oil inventories at Cushing, Oklahoma, the delivery point of the US crude contract, fell by 1.45 million barrels, the EIA said.
Price gains were curbed by a build of 5 million barrels in combined inventories of gasoline and distillates and a 1 percent decline in gasoline demand. Brent crude for September delivery was up 9 cents at $107.42 a barrel at 12:59 pm EDT (1659 GMT), after slipping 35 cents in the previous session. US crude for September delivery rose 43 cents to $102.82 a barrel.
US crude's discount to Brent hit a low of $4.51 earlier in the session, close to its lowest in three months, as high domestic refinery utilisation rates signalled strong near-term demand for crude oil and low inventories at Cushing. Traders said that same dynamic also pushed US cash crude "roll" prices as high as $5 a barrel on Wednesday, in turn vaulting the front-month futures contract up by nearly $1 to a session high of $103.34.
The "roll" period lasts for three days after the expiry of the front-month US light crude contract. Traders and refiners adjust their crude slate during this period, and US cash crude grades are priced against West Texas Intermediate (WTI) in Cushing. Brent has fallen by about 7 percent since mid-June as weak demand from refineries in Europe, due to low profit margins, has crimped consumption.
"You're looking at two different fundamental pictures: a tight Cushing picture, and an overhang of sweet West African barrels. One is bullish and one is bearish, at least on a supply side," said Andy Lebow, vice president at Jefferies Bache in New York. "Of course there are other geopolitical factors."
The Ukraine government said two of its fighter jets were shot down over rebel-held territory in eastern Ukraine on Wednesday, and that the missiles that brought them down might have been fired from Russia. The European Union has threatened Russia with harsher sanctions after the downing of the Malaysian airliner in Ukraine, straining the EU's relationship with the world's second-largest oil exporter.
Fuel storage tanks that supply Tripoli were hit on Wednesday in clashes between rival Libyan militias, igniting a huge blaze near the international airport amidst some of the worst violence in the capital since the 2011 war that ousted Libyan leader Muammar Gaddafi from power. A spokesman for Libya's National Oil Corporation said production on Monday was 450,000 barrels per day, down from 555,000 bpd a few days earlier, partly because El-Feel oil field had reduced output due to the clashes in Tripoli.
The euro slipped to an eight-month low against the dollar on Wednesday due to diverging interest rate outlooks for the United States and euro zone, with fears that further sanctions on Russia could damage Europe's economy. A stronger dollar tends to weigh on commodities priced in the US currency as it makes them more expensive for holders of other currencies.
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