Crude oil futures rose more than 2% on Wednesday

Recap: Crude oil futures rose more than 2% on Wednesday, supported by the 3.5 million barrel draw in U.S. crude oil inventories, which marked the seventh straight week of losses. Meanwhile, U.S. equities surged as worries about China Evergrande Group’s debt woes eased. Uncertainty over China’s economy is easing, as Beijing moved to alleviate fears of a spiraling debt crisis. Crude prices have increased this month after extreme weather disrupted U.S. supplies, and as a rally in natural gas spurred expectations consumers may switch to oil. Traders were also focused on the U.S. Federal Reserve’s latest interest rate decision, with the potential timeline for tapering stimulus measures key for investors. November WTI rose $1.74, or 2.5%, to settle at $72.23 a barrel. November Brent added $1.83, or 2.5%, at $76.19 a barrel. October RBOB tacked on 0.9% to $2.124 a gallon and October heating oil rose 1.7% to $2.212 a gallon.

Technical Analysis: Despite recent wobbles from U.S. economic figures, overall demand for fuel has rebounded to pre-pandemic levels. Product supplied over the last four weeks has come in at nearly 21 million barrels per day, not far from 2019's peak. U.S. crude inventories last week fell by 3.5 million barrels to 414 million barrels, the lowest since October 2018, the U.S. Energy Information Administration said on Wednesday. We expect market participants to focus on the tightness in distillate supplies as we get into the winter heating season. November WTI rose above a short-term downward trend line, as it bounced off of the 10-day moving average. Overall, prices should continue to work higher, with WTI stretching toward $74. Above $74, there is the psychological resistance level of $75. Support is seen at $70.89, and below that at $69.33.

Fundamental News: The U.S. Energy Information Administration said U.S. crude inventories in the week ending September 17th fell by 3.5 million barrels to 413.96 million barrels, the lowest level since October 2018.  U.S. Midwest crude stocks fell 2.8 million barrels to 111.1 million barrels, the lowest level since September 2018, while Gulf Coast stocks fell by 300,000 barrels to 223.9 million barrels, the lowest level since January 2020.  East Coast refinery utilization rates last week increased to 93%, the highest since May 2019.

The global head of commodities research at Goldman Sachs Group, Jeff Currie, said oil prices may increase to $90/barrel if the winter in the northern hemisphere is colder than normal.  The increase would be $10 higher than the bank’s current forecast and would be accompanied by a prolonged period of high natural gas prices. 

Genscape reported that crude inventories in the Amsterdam-Rotterdam-Antwerp region in the week ending September 17th increased by 573,000 barrels to 54.5 million barrels. 

The Bureau of Safety and Environmental Enforcement reported that 294,414 bpd or 16.18% of crude oil production in the Gulf of Mexico remained shut in as of Wednesday, down from 320,909 bpd on Tuesday. 

BP said all four of its offshore facilities in the Gulf of Mexico have resumed operations, having been brought back online and producing as of September 12th post Hurricane Ida.

IIR Energy reported that U.S. oil refiners are expected to have about 902,000 bpd of capacity in the week ending September 24th, increasing available refining capacity by 879,000 bpd.  Offline capacity is expected to fall to 693,000 bpd in the week ending October 1st.

The U.S. Environmental Protection Agency is proposing big cuts to the country’s biofuel blending requirements for the years 2020, 2021 and 2022.  The proposal is a win for the industry, which argued for the cuts due to an overall slowdown in fuel demand during the coronavirus pandemic. 

Early Market Call - as of 9:25 AM EDT

WTI - Nov $72.33, up 10 cents

RBOB - Oct $2.1124, down 1.23 cents

HO - Oct $ 2.2043, down 68 points