Oil prices up after rallying on large drop in US stocks

Crude in American reserves has fallen to its lowest level since December 1983

The New York Stock Exchange. US crude inventories fell by 5.9 million barrels last week. AFP
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Oil prices rose for a fourth straight day on Thursday after rallying by about 3 per cent in the previous session on a large drop in US crude stocks.

Brent, the benchmark for two thirds of the world’s oil, was 0.72 per cent higher at $82.79 a barrel at 6.44pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.89 per cent at $78.99 a barrel.

Brent was 2.8 per cent higher at $82.20 at the time of closing on Wednesday while WTI was up 2.7 per cent.

US crude stocks fell by 5.9 million barrels last week, about three times more than analysts had estimated, data from the US Energy Information Administration showed.

The indicator, which shows the level of oil 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.

Crude oil in the Strategic Petroleum Reserve dropped 3.7 million barrels from the week before to 378.6 million barrels, its lowest level since December 1983.

“Crude prices are rallying after stockpiles declined more than expected and as Opec+ remains committed to keeping supplies tight,” said Edward Moya, a senior market analyst at Oanda.

“As we approach peak holiday season, jet fuel demand has clearly returned, approaching the highest seasonal levels seen since 2017. The path of least resistance is clearly higher for oil prices and it should continue if China’s reopening doesn’t have major obstacles.”

This week Saudi Arabia’s Energy Minister said the Opec+ alliance of 23 oil producers will remain “pro-active” due to market volatility and concerns of a global recession.

“In face of a wide range of uncertainties, Opec+ has no choice but to be pro-active and pre-emptive, and this is not an easy task, especially since the market has the tendency to overreact to news in both directions,” Prince Abdulaziz bin Salman said in an interview with official news agency SPA.

At its December meeting, Opec+ stuck to existing production targets amid uncertainty over sanctions on Russian crude.

Futures were also supported by a weaker US dollar.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was down more than 0.3 per cent at 103.86. A weaker dollar makes oil cheaper for holders of other currencies.

The index, which hit a two-decade high at 111.80 in September, has fallen about 7 per cent over the last three months amid signs of slowing inflation.

The consumer price index in the US cooled to 7.1 per cent in November, down from 7.7 per cent in October, after soaring to a pandemic high of 9.1 per cent last June.

The moderation in the consumer price growth was lower than the consensus forecast of 7.3 per cent, marking the slowest pace of price growth since December 2021.

Oil prices have gained this week on hopes of a demand rebound in China, the world's second-largest economy and top crude importer.

China will focus on boosting domestic demand by prioritising the recovery and expansion of consumption, officials said at the annual budget-setting Central Economic Work Conference last week, state news agency Xinhua reported.

“We have the confidence, conditions and capacity to turn China's economy for the better as a whole,” Han Wenxiu, executive deputy director of the office of the Central Committee for Financial and Economic Affairs, was quoted as saying by Xinhua.

Last week, the International Energy Agency raised its global oil demand growth estimate for this year and the next on rising crude consumption in India, China and the Middle East.

The Paris-based agency now expects demand to grow by 1.7 million barrels per day in 2023, up from its previous estimate of 1.6 million bpd.

Updated: December 22, 2022, 10:44 PM