Oil prices held on to their gains on Friday, thanks to the fall in US oil inventory report.
For figures, US Crude Oil WTI Futures gained 0.3% to $56.21. Meanwhile, benchmark Brent Oil Futures crept 0.1% higher, trading at $63.45.
Looking at the bigger picture, WTI is 23% higher so far this year. Brent has climbed around 18%.
In the absence of other market-moving events, analysts attribute the gains today to bullish fundamentals. This refers to the data that showed a draw in US stockpiles.
And that draw marks its sixth consecutive week.
Lower Oil Inventory Report
US crude stocks lost 10.8 million barrels last week, according to the Energy Information Administration on Wednesday.
This figure is staggeringly larger than expectations of a draw of only 4 million barrels.
The silver lining, though, is that the data could have received some impacts from Hurricane Barry. Barry touched down on the central Louisiana coast earlier this month. Because of that, many oil platforms had to shut down production.
Another concern takes the form of the Middle East, where supplies suffer disruptions. This further propped up the oil markets, but sluggish economic growth kept a lid on gains.
Meanwhile, the US-China trade war still takes some portion of the cake. Officials from both sides plan to continue in-person trade talks as early as next week.
Oil Inventory Report Explained
Crude oil stockpiles, or oil inventory, are reserves of unrefined petroleum in barrels. The Energy Information Agency (EIA) reports the data every week.
Basically, the report shows the level of crude stockpiles in the US, not including those in the Strategic Petroleum Reserve (SPR), which is basically emergency fuel. Crude oil stockpiles are for commercial uses.
This report is a major market mover, with analysts projecting every week on inventory changes.
If the EIA report differs from expectations, oil prices may move solidly, as one can see on recent news. Higher inventory means more oil supply to move away for refining.
These oil stocks are at the Cushing, Oklahoma delivery hub. West Texas Intermediate (WTI) crude oil prices come from barrel figures in Cushing.
What this means for the Economy
The oil inventory report is crucial for supply and demand movements. Therefore, the report also affects the prices we see on markets, be it futures or spot prices.
An increase in supply means sellers are willing to produce more oil than what buyers demand. In that scenario, all things being the same, prices may go down. To encourage demand, suppliers may reduce either the price or production.
When supplies decline, it generally means there’s enough buyer interest at the price point. Thus, sellers can increase oil prices.
Circling back to the EIA oil inventory report at present, prices could probably see a sharper increase if the draw continues. Such a scenario will continue until oil stocks increase or other directional drivers appear.
COMMENTS