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Oil at two-week high after largest weekly crude-supply drop since 1999

Published: Sept 8, 2016 3:26 p.m. ET

EIA reports a whopping 14.5 million barrel drop in crude supplies

Oil futures on Thursday logged their highest settlement in at least two weeks after U.S. government data revealed the largest drop in crude supplies since 1999.

The 14.5 million-barrel decline reported by the Energy Information Administration was even larger than the surprise 12.1 million-barrel drop reported by the American Petroleum Institute late Wednesday. Ahead of both reports, analysts polled by S&P Global Platts expected a 425,000-barrel climb.

“The large draw in crude oil inventory was driven by a large decline this week in crude oil imports, primarily weather-related, while refinery runs continued to be quite strong,” Robert Merriam, manager of Petroleum Supply Statistics at the EIA, told MarketWatch. He confirmed that the weekly supply drop was the largest since the week ended Jan. 1, 1999.

Oil prices also found support from Chinese data that showed another big increase in the country’s crude imports.

October West Texas Intermediate crude CLV6, -0.67% added $2.12, or 4.7%, to settle at $47.62 a barrel on the New York Mercantile Exchange. That was the strongest dollar and percentage gain since April.

November Brent crude on London’s ICE Futures exchange LCOX6, +3.56% rose $2.01, or 4.2%, to $49.99 a barrel.
The settlement for WTI was the highest since Aug. 26 and highest for Brent since Aug. 19, according to FactSet data.
“Crude supply was down dramatically on lower imports,” said James Williams, energy economist at WTRG Economics. “Imports fell because of ships delayed” by last week’s storm.
Weekly net crude imports fell by about 1.8 million barrels a day, the EIA said.
“We should see a spike in oil prices gradually reversed after the realization of the shipping delay sinks in,” Williams said. “Next week we will see a spike in imports and crude stocks as the delayed ships are unloaded.”

At the peak, as much as 22.1% of oil production in the Gulf of Mexico was halted on Aug. 30 due to a tropical depression in the region, which later became Hurricane Hermine, according to the Bureau of Safety and Environmental Enforcement. As much as 10.6% of natural-gas output was shut in, on Aug. 31, because of the storm.

The EIA data showed that total domestic production edged down by 30,000 barrels a day last week to 8.458 million barrels a day, though output rose by 15,000 barrels a day in the lower 48 states.

Gasoline supplies fell 4.2 million barrels, while distillate stockpiles rose by 3.4 million barrels, according to the EIA. The market was looking for a drawdown of 625,000 barrels for gasoline, while distillate stockpiles were seen up 1.1 million barrels, according to the S&P Global Platts survey of analysts.

Separately, the EIA reported a weekly rise of 36 billion cubic feet for natural-gas supplies. That was below the average rise of 41 billion cubic feet expected by analysts polled by S&P Global Platts.
October natural gas NGV16, -0.14% settled up 13 cents, or 4.9%, at $2.806 per million British thermal units.
Oil boost from China data

Meanwhile, oil prices also got a boost from Chinese government data that showed the country’s oil imports rose to their highest level of the year last month.

China, the world’s No. 2 oil user after the U.S., imported 32.85 million tons of oil in August, equivalent to 7.8 million barrels a day, data from the General Administration of Customs showed Thursday. The figure is the highest level of monthly imports since December.

“The death of Chinese oil demand has been greatly exaggerated,” said Phil Flynn, senior market analyst at Price Futures Group. “Now with Chinese oil production falling, they will see imports stay on the high side.”

Oil prices were trading higher week to date following a cooperation pact between Saudi Arabia and Russia aimed at stabilizing the oil market as a supply glut persists. But skepticism over whether big producers will follow through on formal production caps at a meeting later this month has kept those gains in check.

For now, the oil market “is still technically range-bound in the mid-$40’s as traders question whether or not global producers will agree on any sort of bullish freeze deal later this month, while other fundamentals such as stalling U.S. production declines and record stockpiles world-wide are bearish,” said Tyler Richey, co-editor of The 7:00’s Report.