Oil prices rise after big drawdown in US crude stocks allays demand concerns

US crude oil inventories fell by about 7.8 million barrels last week

The Grupa Lotos oil refinery in Gdansk, Poland. The EU has still not agreed on a price cap for Russian oil, with just days to go for the December 5 deadline. Reuters
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Oil prices rose on Wednesday as a large drop in US crude oil stocks helped offset demand concerns.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.13 per cent higher at $83.97 a barrel at 10.57am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.86 per cent at $78.87 a barrel.

US crude oil inventories fell by about 7.8 million barrels last week, sources said, citing data from the American Petroleum Institute.

The indicator, which shows the level of oil and product stored, gives an overview of US petroleum demand. If the increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices.

The US Energy Information Administration is expected to release its weekly crude inventory data later on Wednesday.

Oil prices rose more than 3 per cent in Tuesday’s session but closed 0.2 per cent lower as the EU struggles to agree on a price cap for Russian oil, with just days to go for the December 5 deadline.

The Opec+ supergroup of oil producers has reportedly changed its plans for the December 4 meeting to be an online event now. The gathering had been scheduled to be conducted in person in Vienna.

This has “prompted speculation that no major decision will be taken and that output targets will be rolled over”, Emirates NBD said in a research note.

“Opec+ may include language suggesting that the meeting remains ‘open’, however, giving themselves leeway to intervene on short notice,” Emirates NBD said.

In October, the 23-member alliance decided to reduce its collective output by 2 million barrels per day in response to a slowing global economy.

It has not ruled out the possibility of further production cuts as demand concerns continue to weigh on crude prices.

Last week, Saudi Energy Minister Prince Abdulaziz bin Salman reaffirmed that the group’s current output cut would continue until the end of 2023.

“If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene,” Prince Abdulaziz was quoted as saying by the Saudi Press Agency.

His comments came in response to a Wall Street Journal report stating that Saudi Arabia, the world’s largest crude exporter, was considering raising output targets by 500,000 bpd at this week's meeting.

“Also influencing the group's analysis will be Russian sanctions, most notably the price cap which is yet to be fully agreed upon,” Craig Erlam, senior market analyst at Oanda, said.

Last week, a Group of Seven (G7) advanced economies' proposal to set the price cap in the $65 to $70 range was rejected by some members, as it is close to prices Russia is already receiving for its crude.

“Russia itself is a key member of the Opec+ alliance, just to complicate matters further and could throw its weight around in those discussions and make an agreement harder and more uncertain,” said Mr Erlam.

An EU embargo on seaborne Russian crude exports is also expected to come into effect on December 5.

The bloc “does have a tendency to make full use of deadlines … not that the [Opec+] alliance always comes to quick agreements and on this occasion, you could easily forgive them for not”, Mr Erlam said.

“Needless to say, this is certainly a recipe for volatile trading conditions.”

Updated: November 30, 2022, 7:58 AM