Oil hits more than one-year high after surprise US crude draw
U.S. crude hit a more than one-year high on Wednesday after government data showed that U.S. crude stockpiles declined for the sixth time in seven weeks, as refinery activity fell and the country imported less crude.
U.S. West Texas Intermediate (WTI) crude oil futures were up $1.43, or 2.8 percent, at $51.72 a barrel, after touching $51.93, the highest level since July 16, 2015, when WTI hit $52.17.
U.S. commercial crude inventories fell by 5.2 million barrels to a total of 468.7 million barrels in the week through Oct. 14, the Energy Information Administration reported. Analysts polled by Reuters had forecast a 1.6-million barrel drop.
Distillate stockpiles, which include diesel and heating oil, fell by 1.2 million barrels, versus expectations for a 1.6 million-barrel decline, the EIA data showed. Gasoline stocks rose by 2.5 million barrels, compared with expectations in a Reuters poll for a 1.3 million-barrel drop.
U.S. refinery rates dropped to 85 percent last week, the lowest level since April of 2013, according to data released Wednesday by the U.S. Energy Information Administration. Meanwhile, commercial imports dropped to 6.9 million barrels per day last week, the lowest volume since June of last year, EIA data showed.
It is common for crude stocks to build at this time of year as refineries go into maintenance, turning out less gasoline and other fuel products. Refinery runs have fallen since the start of September.
“We are leaving open the possibility that the U.S. refiners are attempting to reduce rather than build stocks, possibly in anticipation of lower prices going forward,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
Also supporting oil in early trade was evidence of declining production in China, and optimism that the Organization of the Petroleum Exporting Countries will secure an output cut at its meeting next month.
Saudi Energy Minister Khalid al-Falih said on Wednesday that oil markets were at the end of a considerable downturn as fundamentals were improving and supply and demand were rebalancing.
He called on non-OPEC producers to help stabilize the market saying their role was as critical as the role of OPEC members.
Russian Energy Minister Alexander Novak said on Wednesday he was planning to meet Falih this weekend to discuss coordination of possible actions.
A slightly weaker dollar reinforced the strength in oil as well, traders said, as it makes fuel purchases cheaper for countries using other currencies, potentially spurring demand.
As the world’s largest exporters prepare to discuss the first cut in output in eight years next month, the pressure of persistently low oil prices on higher-cost producers is becoming apparent.
China’s crude output fell 9.8 percent to 3.89 million barrels per day (bpd), near its lowest in six years in the second-biggest year-on-year decline on record.
“The fall in Chinese crude oil production is probably attributable to the low price level, which makes parts of production unprofitable. This makes it all the harder to understand why OPEC is talking prices up with its current debate about production cuts, and is thus helping precisely those oil producers it would ideally like to force out of the market,” Commerzbank analysts.
Adding to the support to crude prices from lower output, refining rates in the world’s largest commodities consumer rose last month.
China processed 43.8 million tons (10.7 million bpd) of crude oil in September, up 2.4 percent from a year ago.
Mohammed Barkindo, secretary general of the OPEC, gave the market a boost by saying he is confident about the prospects of a planned production cut following an OPEC meeting on Nov. 30.
“I am optimistic we will have a decision,” he said.
OPEC said it plans to reduce production to 32.5 million to 33 million bpd, compared with record output of 33.6 million bpd in September.