Oil Futures Surge on Inventory Draws

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivery oil futures and Intercontinental Exchange Brent settled sharply higher Wednesday afternoon. This came after government data showed across-the-board draws in U.S. crude and petroleum stocks during the week ended Aug. 23 with West Texas Intermediate rallying 1.5%, although the U.S. crude benchmark pared today's advance by nearly $1 as weekly data showed domestic oil production expanding to a record high.

NYMEX October WTI futures faded from a $56.75 per barrel (bbl) one-week high to settle $0.85 higher at $55.78 bbl, while the ICE October Brent contract held onto a larger gain, up $0.98 at a $60.49 bbl two-week high settlement. November Brent settled up $0.90 at $59.93 bbl.

NYMEX September ULSD futures gained 3.51 cents to settle at $1.8510 gallon, with the October contract ending at a 65-point premium to the September contract ahead of Friday's expiration. NYMEX September RBOB futures advanced 3.25 cents to settle at $1.6824 gallon with two days left of trading, while October RBOB ended at an 11.76 cents discount to the expiring contract.

Oil futures held higher in Wednesday afternoon trading after the Energy Information Administration reported a massive 10 million bbl drop in U.S. commercial crude oil inventories, bringing inventories in line with the five-year average and easing concern that the market would be oversupplied at a time when the peak driving season in the United States comes to an end and refiners begin idling units for seasonal maintenance. Following supply builds week prior, government data also showed larger-than-expected draws in both gasoline and distillate stocks for the week profiled. Implied demand for refined fuels held higher in the week reviewed.

The third largest crude draw this summer is partly attributed to a massive 1.29 million barrels per day (bpd) drop in crude imports during the profiled week, while exports continued higher for the second consecutive week. According to EIA, U.S. crude exports climbed to 3 million bpd, alleviating concern a narrowing discount between the U.S. benchmark to the global oil price would curb exports.

On the bearish side, EIA reported U.S. oil production climbed 200,000 bpd in the reviewed week to a record-high 12.5M bpd after three weeks of anemic output.

Looking ahead, Dorian strengthened to hurricane status Wednesday and is forecast to approach the U.S. Southeast coastline as a Category 3 Hurricane over the Labor Day weekend. According to National Hurricane Center, Hurricane Dorian is heading toward Florida, and is likely to cause short-term delays in maritime shipping routes.

Liubov Georges can be reached at liubov.georges@dtn.com

(BE)