Oil prices up on US crude inventory drawdown

August 30, 2023 (MLN): Oil prices saw an increase on Wednesday after industry data showed a large reduction in crude inventories in the U.S., the world's biggest fuel consumer, while concerns about a hurricane in the Gulf of Mexico kept investors on edge.

Brent crude is currently trading at $85.11 per barrel, up by 0.28% on the day.

While West Texas Intermediate crude (WTI) is trading at $81.26 per barrel, up by 0.26% on the day.

Both benchmarks rallied more than a dollar a barrel on Tuesday as the U.S. dollar slid after the prospects of further interest rate hikes eased following softer U.S. job data, as Reuters reported.

U.S. crude stocks declined by about 11.5 million barrels in the week ended Aug. 25, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts polled by Reuters prior to the data had estimated on average a draw of 3.3 million barrels.

The bigger-than-expected draw in U.S. crude oil stockpiles is positive for the oil market as it suggests firm demand, said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

At the same time, investors bought futures on concerns surrounding Hurricane Idalia, which is churning over the Gulf of Mexico to the east of major U.S. oil and natural gas production sites.

"Concerns over the Hurricane Idalia prompted fresh buying," said Tazawa.

The offshore Gulf of Mexico accounts for about 15% of U.S. oil output and about 5% of natural gas production, according to the Energy Information Administration (EIA).

Oil major Chevron Corp evacuated some staff from the region, but production was continuing at the sites it operates in the Gulf of Mexico.

Oil supply is expected to remain tight as analysts expect Saudi Arabia, the world's biggest oil exporter, will extend its voluntary output cut into October.

However, worries about fuel demand and the macroeconomic situation in China, the world's biggest oil importer, kept a lid on prices.

While China's economy regained some ground in July, following a contraction in June, the big picture is that various output indicators have leveled off recently and the economy could tip into a downward spiral unless policy support is ramped up soon, said Capital Economics analysts in a client note.

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