Oil Prices Increase Amid Significant Weekly Decline in US Crude Inventories

By Nicole Jao

NEW YORK – Oil prices increased by approximately 1% on Wednesday, buoyed by a larger-than-expected reduction in inventories; however, concerns about rising global stock levels tempered the gains amid light trading volumes in advance of the U.S. Independence Day holiday.

Crude oil futures climbed $1.10, or 1.3%, closing at $87.34 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures rose by $1.07, also a 1.3% increase, reaching $83.88.

The U.S. Energy Information Administration (EIA) reported a significant draw of 12.2 million barrels in the nation’s crude oil stocks last week, which exceeded analysts’ forecasts of a 680,000-barrel decrease.

"Strong exports, a slight decline in imports, and an uptick in refinery operations led to a remarkable draw of crude inventories," commented Matt Smith, an oil analyst at Kpler.

Despite the positive news regarding inventories, the market’s response was subdued due in part to reduced trading volumes as the holiday approached.

Additionally, concerns about potential supply disruptions caused by Hurricane Beryl contributed to higher oil prices. However, the situation became less alarming when the U.S. National Hurricane Center indicated that the storm is predicted to weaken before entering the Gulf of Mexico. Nonetheless, rain and wind could still impact Mexico’s offshore oil production and its export infrastructure, potentially tightening supply, as noted by Andrew Lipow, president of Lipow Oil Associates. Mexico is a major player in the crude oil export market.

In a separate report, OPEC output was found to have increased for the second month in a row in June, which placed downward pressure on oil prices. Increased supply from Nigeria and Iran counteracted the effects of voluntary supply cuts from other OPEC members and the broader OPEC+ alliance.

Analyst Kelty from Panmure Gordon noted, "OPEC+ increased production in June despite commitments to maintain quotas through the third quarter, and ongoing worries about a sluggish recovery in China have sent negative signals."

Further complicating the outlook for oil prices, recent surveys indicated that China’s services sector grew at its slowest rate in eight months, with business confidence at a four-year low in June. Additionally, overall growth within the euro zone also sharply declined. Given that China is the largest importer of crude oil, any slowdown in its economic activity poses a risk to oil demand.