After a somewhat weak start to the Thursday session, oil prices rose to eight-week highs by noon, boosted by a stronger-than-expected inventory draw in the U.S. and pledges by leading producers in the Middle East that they would cut supplies to the global market in earnest.
At 12:40pm, WTI Crude was up 0.88 percent at US$49.18, while Brent Crude was trading up 1.20 percent at US$51.58 – price levels not seen since the first week of June.
Yesterday, the EIA once again helped to lift oil market spirits by reporting another hefty decline in U.S. commercial crude oil inventories for the week ending July 21. A day after the American Petroleum Institute estimated inventories had declined by a generous 10.23 million barrels—the largest draw of the year according to the API—the EIA said crude oil inventories diminished by 7.2 million barrels, to 483.4 million barrels. The EIA had reported hefty inventory draws in the last three weeks as well.
Earlier this week, Saudi Energy Minister Khalid al-Falih indicated that OPEC’s de facto leader and biggest producer Saudi Arabia would cut its crude exports to just 6.6 million barrels per day next month. Kuwait and the UAE followed suit, and also pledged curbs in exports.
Commenting on the possibility for oil prices to recover, Stephen Brennock at oil brokerage PVM told Reuters on Thursday:
“As encouraging as this may seem, the price recovery won’t begin in earnest until evidence of U.S. oil rebalancing is mirrored on a global scale.”
Achieving rebalancing of the global market has been the mantra of OPEC since it decided to collectively reduce production. But the price gains immediately after the deal was announced encouraged U.S. shale producers to increase production. In addition, Libya and Nigeria started recovering their production, crippled by civil strife and militant violence, pushing the rebalancing of the market further down the road.
By Tsvetana Paraskova for Oilprice.com
