Oil rally continues, as optimism builds ahead of USA supply data

Oil falls on US stock market dive
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Oil falls on US stock market dive Read more

The 7.2 million barrel decline in crude inventories in the week ending 21 July was well above the 2.6 million barrel forecast.

According to the U.S. Energy Information Administration, U.S. weekly ethanol production averaged 1.02 million barrels per day (b/d) during the first six months of 2017. EIA data showed distillate stockpiles, which include diesel and heating oil, declined by 1.9 million barrels, versus expectations for a 453,000-barrel drawdown.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September CLU7, +0.96% recently traded up 40 cents, or 1%, to $48.39 a barrel in the Globex electronic session.

Oil prices rose sharply on Wednesday after USA government data showed crude and fuel inventories fell more than expected, reinforcing expectations that the long-oversupplied market was moving toward balance.

Saudi Arabia pointed fingers at OPEC's less compliant members over the weekend, which included the UAE, who had agreed to shave 139,000 bpd of production to stay under 2.874 million bpd-down from its reference level of 3.013 million bpd. The cartel also got a commitment from some other non-OPEC countries such as Russian Federation and Venezuela to reduce their oil output. Unshockingly, the UAE, which is comprised of individual emirates that are responsible for managing their own oil production and resource development, failed to hit its production promises every month since the deal was signed. The UAE consumes less than a third of its total crude oil production-so it is unclear, assuming it continues to overproduce, exactly what the UAE intends on doing with the 10 percent it is shaving off its September exports.

Oil has traded below $50 a barrel since May amid concern that rising global output will offset reduced flows from members of the Organization of Petroleum Exporting Countries and its allies including Russian Federation. The EIA reported the inventory data on July 19, 2017. Gasoline demand is still down 0.3% for the past four weeks from the year-ago period. US gross ethanol exports averaged 96,000 b/d, a 40 percent higher figure than was seen during the same period the year before.

The West Texas Intermediate now trades around $46.02 per barrel and analysts believe that USA producers will be forced to take some of their rigs out of commission if the WTI falls and stays in between the $40 to $45 per barrel range.

Still, many analysts and investors believe the oil-price recovery is still tentative.

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