Crude Oil Falls Despite Record Draw in US Crude Stockpiles

By Adedapo Adesanya

Crude oil went down by 2 per cent on Wednesday despite a historic drop in crude stocks in the United States, as traders derisk following the downgrade of the US government’s top credit by a major ratings agency.

Brent crude futures depreciated by $1.71 or 2 per cent to $83.20 a barrel, while the US crude futures declined by $1.88 or 2.3 per cent to $79.49 a barrel.

US crude stocks fell in the week by 17 million barrels, the largest drop in US crude inventories according to records dating back to 1982, according to the Energy Information Administration (EIA) on Wednesday.

The draw was driven by increased refinery runs and strong crude exports, which compared with a modest decline of 700,000 barrels for the previous week.

The American Petroleum Institute (API) on Tuesday reported that oil inventories in the US had declined by 15.4 million barrels, which was also a prediction of the largest draw in years and immediately pushed oil prices even higher.

According to the EIA, on the other hand, at 439.8 million barrels, crude oil inventories are 1 per cent below the five-year average for this time of the year.

Worries also emerged as rating agency Fitch downgraded the US government’s top credit rating. It gave the world’s largest economy a review to AA+ from AAA over threats that it may not be able to pay its bills.

Demand forecasts suggested a sizeable supply deficit for the second half of the year as production remains constrained by cuts and outages from Nigeria and the Organisation of the Petroleum Exporting Countries and its allies (OPEC+).

As a result, the US Department of Energy pulled back an offer to buy 6 million barrels of crude for the strategic petroleum reserve (SPR). The offer was made in early July when WTI was trading below $72.

Meanwhile, concerns have risen that oil buying in China, the world’s biggest oil importer, may slow as prices rise.

The country has seen weak data, with its manufacturing activity falling for a fourth straight month in July, threatening growth prospects for the third quarter. This also indicated fuel demand may be weaker than expected.

Analysts expect Saudi Arabia to extend its voluntary oil output cut of 1 million barrels per day for another month to include September in the OPEC+ meeting on Friday, August 4.

Reuters reported that OPEC+ is unlikely to revise its current oil output policy at the meeting.