Oil prices rise on large drop in US crude stocks

US inventories, an indicator of fuel demand, fell by 15.4 million barrels last week

Crude storage tanks at the oil hub in Cushing, Oklahoma, about 80km west of Tulsa. Reuters

Oil prices rose on Wednesday as a large drop in US crude stocks signalled strong fuel demand in the world’s largest economy.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.62 per cent higher at $85.44 a barrel at 4.12pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 0.74 per cent at $81.97 per barrel.

On Tuesday, Brent settled 0.61 per cent lower at $84.91 a barrel, while WTI was down 0.53 per cent at $81.37.

“The oil market will likely remain tight even if the oil giants like BP start delivering large price increases,” said Edward Moya, senior market analyst at Oanda.

“Oil remains one of the most attractive trades, and buyers will likely emerge on every dip.”

US crude inventories, an indicator of fuel demand, fell by 15.4 million barrels in the week that ended on July 28, according to the American Petroleum Institute.

Analysts were expecting a drop of 1.37 million barrels, according to Reuters.

The US Energy Information Administration is scheduled to release its weekly inventory data later today.

The US manufacturing sector stabilised last month but at weaker levels amid an improvement in new orders.

The Institute for Supply Management (ISM) said that its manufacturing PMI rose to 46.4 in July from 46.0 in June, which was the lowest reading since May 2020.

“The US manufacturing sector shrank again, but the uptick in the PMI indicates a marginally slower rate of contraction," said Timothy Fiore, the chair of ISM, in a report on Tuesday.

"The July composite index reading reflects companies continuing to manage outputs down as order softness continues."

Oil prices fell on Monday on weak economic data from China, the world’s second-largest economy and top crude importer.

Manufacturing activity there fell for the fourth month in a row in July.

China's Caixin/S&P Global manufacturing purchasing managers' index dropped to 49.2 last month, from 50.5 in June, marking the first decline in activity since April. The 50-point index mark separates expansion from contraction.

Oil prices recorded their biggest monthly gain since early 2022 in July amid falling crude inventories, Opec supply cuts, and as cooling inflation eases concerns of aggressive interest rate increases by central banks.

This week, Goldman Sachs reaffirmed its Brent forecast of $86 a barrel by December and said it expects prices to rise to $93 in the second quarter of 2024.

The US investment bank also raised its 2023 oil demand estimate by 550,000 barrels per day, and said that crude consumption reached a record high of 102.8 million bpd this month.

Last month, Saudi Arabia, the world's largest oil exporter, said it would extend its voluntary output cut of 1 million bpd until August.

Russia has also announced an additional output reduction of 500,000 bpd for this month.

On June 4, Opec agreed to keep its current output policy in place until the end of 2024.

The group has total production curbs in place of 3.66 million bpd, or about 3.7 per cent of global demand, including a 2 million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.