Oil rose more than 3 percent on Wednesday in thin, pre-holiday trading, buoyed by a surprise drop in US crude inventories, but prices stayed near multi-year lows as global supplies remained abundant and OPEC lowered the demand outlook for its exports.
Ahead of the Christmas holiday on Friday, volume in the front-month US crude contract was around 280,000 lots by midday, slightly less than the 294,000 lots on Tuesday, according to Thomson Reuters Eikon data. At 1:12 p.m. EST (1812 GMT), West Texas Intermediate futures were up $1.30 at $37.44 a barrel, while Brent crude futures were up $1.12 at $37.23 a barrel.
A day earlier, Brent touched $35.98, its lowest since July 2004. Baker Hughes reported that US oil drillers cut rigs for a fifth week in the last six, a sign drillers were waiting on higher prices before returning to the well pad. WTI was little changed after the report.
U.S crude inventories fell 5.88 million barrels to 484.78 million last week compared with a forecast rise of 1.4 million, the Energy Information Administration (EIA) said. "The inventory draw painted a good picture for the bulls because it was larger than a lot of people were expecting," said Oliver Sloup, director of managed futures at iiTrader.com in Chicago. "It's prompting some short covering going into the holiday week and we're seeing some house cleaning by a lot of traders."
On Wednesday, the front-month WTI contract traded as much as 56 cents over Brent, inverting a long-standing discount following last week's signing into law a bill repealing the decades-old US crude ban. Although no immediate large-scale exports are expected, Enterprise Products Partners on Wednesday said it won its first contract to export US crude oil for trader Vitol in what may become the first such cargo.
Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) in a report on Wednesday forecast that demand for its crude would be lower in 2020 than in 2016 as rival producers prove more resilient than expected in a low oil price environment. Saudi King Salman said on Wednesday the kingdom was concerned about the stability of the oil market Iran is expected to add 500,000 bpd of crude exports next year and Iranian officials have already met with Indian refiners seeking proposals on how to make their crude more competitive.
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