By Barani Krishnan
Investing.com -- The prospect of more oil being used to heat Europe in the winter, as Russia holds the bloc to ransom over gas supply, helped crude prices rise for a fourth time in five days, with the U.S. West Texas Intermediate benchmark testing the key $90 per barrel level.
Also boosting the market was the smaller growth in U.S. crude inventories cited by the government for last week, versus the bumper number reported on Tuesday night by trade group API.
The American Petroleum Institute said crude stocks rose by 6.035 million barrels for the week ended Sept. 9. The government-run Energy Information Administration, or EIA, reported a more benign build of 2.442 million barrels for last week, although that was still higher than the 833,000 barrels forecast by industry analysts tracked by Investing.com. For what it’s worth, the EIA reported a monstrous build of 8.844 million barrels for the previous week to Sept. 2.
As per trend, the crude build attracted less attention than the weekly drawdown in the Strategic Petroleum Reserve, or SPR, which the Biden administration has depended on to flood the market with supply to keep oil and fuel prices low.
According to the EIA, the SPR saw an outflow of 8.4 million barrels during the week to September 9, bringing its stockpile to 434.1 million — the lowest since November 1984.
The Biden administration has been drawing down the SPR since November last year. But outflows from the reserve really accelerated in May when the administration embarked on a battle to bring down the spiraling pump price of gasoline that had bumped U.S. inflation to 40-year highs. The president committed to draw down 180 million barrels from the reserve over a six-month period — or roughly one million barrels per day — between May and October.
The drawdowns have succeeded in bringing down gasoline prices to below $3.50 per gallon at some U.S. pumps from a record high of $5.01 in mid-June.
New York-traded West Texas Intermediate, which serves as the U.S. crude benchmark, settled up $1.17, or 1.3%, at $88.48 per barrel, after a session high of $90.17. Just last week, WTI hit a seven-month low of $81.20.
Brent, the London-traded global benchmark for oil, settled up 93 cents, or 1%, at $94.10 per barrel, versus its intraday peak of $95.79. Brent hit a January trough of $87.25 last week.
“It’s the combination of the not-too-big crude build reported by the EIA, as well as the large SPR draw that helped take the market higher,” said John Kilduff, partner at New York energy hedge Again Capital. “Also, there’s increasing talk of oil being deployed in greater quantity to heat Europe during the West because of the energy weaponizing that Russia is doing."
The International Energy Agency, or IEA, said it expects the deepening economic slowdown and a faltering Chinese economy to cause global oil demand to grind to a halt in the fourth quarter of the year.
However, the IEA also said it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day (bpd) in October 2022 to March 2023 - double the level of a year ago.
Aside from the build in U.S. crude inventories, stockpiles of distillate — the oil variant required for making the diesel needed for trucks, buses and trains, as well as the fuel for jets — rose by 4.219 million barrels last week, adding to the previous week’s 95,000-barrel build. Analysts had forecast distillate balances to be flat for the week.
Stockpiles of gasoline fell 1.767 million barrels after the previous week’s build of 333,000. Analysts had forecast a drawdown of 858,000 barrels for last week.
Total demand for gasoline was, however, lower by 233,000 barrels last week compared with the prior week, standing at a revised 8.49 million barrels.