Oil prices extend gains as US draws heavily on stocks

London — Oil prices extended gains on Thursday after a bigger-than-expected drawdown in US crude inventories while production remains hampered in the Gulf of Mexico after two hurricanes.

Brent crude rose 9c, or 0.1%, to $76.28 a barrel at 8.56am GMT. West Texas Intermediate was up 4c, or 0.1%, to $72.27 a barrel.

Both contracts jumped 2.5% on Wednesday after data from the US Energy Information Administration (EIA) showed US crude stocks in the week to September 17 fell by 3.5-million barrels to 414-million barrels — the lowest  since October 2018.

“With Gulf of Mexico production returning slowly, and natural gas prices remaining sky high, the structural outlook for oil remains promising as Opec+ struggles to meet even its current production quotas,” said Jeffrey Halley, analyst at brokerage Oanda.

Several Opec+ countries — including Nigeria, Angola and Kazakhstan — have struggled to raise output in recent months due to years of under-investment or maintenance work delayed by the pandemic.

The dollar, which usually has an inverse relationship with commodities prices including oil, eased slightly from a one-month high, after the US Federal Reserve set the stage for rate hikes next year but left enough breathing room to slow things down if necessary.

The Fed “gave advance notice of its tapering intention, thereby confirming its economic optimism, which ultimately points to robust US oil demand,” said Barbara Lambrecht, an analyst at Commerzbank.

The oil market was also supported by a return of appetite for risk assets as concerns eased over a dollar — bond interest payment due on Thursday from property developer China Evergrande.

In a sign of strong fuel demand as travel bans ease, East Coast refinery utilisation rates in the US rose to 93%, the highest since May 2019, EIA data shows.

Market sentiment is also being supported by surging natural gas prices, ANZ Research said. “Supply shortage of gas could encourage power utilities to shift from gas to oil if winter turns out to be colder this year,” ANZ analysts said in a note.

Gas prices have risen sharply around the globe in recent months due to a combination of factors, including increased demand — particularly from Asia as it enters its post-pandemic recovery — low gas inventories, and tighter-than-usual gas supplies from Russia.

Reuters