Oil prices climb amid unexpected US crude stockpile draw

July 03, 2024 (MLN): Oil prices rose on Wednesday due to a larger-than-expected draw in U.S. crude stockpiles, with Middle East tensions also contributing to the gains.

Brent crude traded near $86.41 per barrel, after edging down yesterday.

While West Texas Intermediate crude (WTI) was near $83 per barrel.

Both benchmarks closed lower on Tuesday as fears faded that Hurricane Beryl would disrupt production in the Gulf of Mexico. It is expected to have weakened into a tropical storm by the time it enters the Gulf of Mexico late this week, according to the U.S. National Hurricane Center, as Reuters reported.

"Having gained previously due to fears of supplies disruption from Hurricane Beryl, there may be some unwinding as greater clarity points towards limited potential impact," said Yeap Jun Rong, a market strategist at IG.

"That said, a significant drawdown in U.S. crude inventories offered some support for prices, while tensions in the Middle East continue," Yeap added.

U.S. crude oil inventories fell by 9.163 million barrels in the week ended June 28, according to market sources citing American Petroleum Institute figures on Tuesday. However, gasoline inventories rose by 2.468m barrels, and distillates fell by 740,000 barrels.

BP is having a change of heart on renewables.

"Oil prices were supported by a U.S. crude inventories draw, but gains were limited as some investors were still seeking to take profits from the recent rally to reach the highest levels since April," said Mitsuru Muraishi, an analyst at Fujitomi Securities.

The Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due to release its weekly data on Wednesday at 1430 GMT.

Meanwhile, U.S. gasoline demand is expected to ramp up as the summer travel season picks up with the Independence Day holiday this week. American Automobile Association has forecast that travel during the holiday period will be 5.2% higher than in 2023, with car travel up 4.8%.

In the Middle East, Israeli forces bombarded several areas of the southern Gaza Strip on Tuesday, with thousands of Palestinians fleeing their homes. The Israeli military and the Lebanese armed group Hezbollah have also been trading fire across Lebanon's southern border.

"The risk of an Israel Hezbollah war, combined with the risk of a broadening conflict in the Middle East, likely means upside risks to our near term outlook," said Vivek Dhar, an analyst at Commonwealth Bank of Australia.

Meanwhile, the Organization of the Petroleum Exporting Countries' (OPEC) oil output rose in June for a second consecutive month, a Reuters survey found on Tuesday, as higher supply from Nigeria and Iran offset the impact of voluntary supply cuts by other members and the wider OPEC+ alliance.

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