Oil Gains 3% Despite Surprise Rise in US Crude Inventories

By Adedapo Adesanya

Oil prices appreciated by 3 per cent on Wednesday as improved risk appetite provided support despite data showing an unexpected rise in crude inventories in the United States.

The Brent crude gained $2.8 or 3.34 per cent to close at $71.90 while the US West Texas Intermediate (WTI) crude recorded a rise of $3.88 or 3.43 per cent to trade at $70.03 per barrel.

Both futures rebounded after dropping around 7 per cent on Monday, following a deal by the Organization of Petroleum Exporting Countries and allies (OPEC+) to boost supply by 400,000 barrels per day from August through December.

The gains occurred even as the Energy Information Administration (EIA) reported a crude oil inventory build of 2.1 million barrels for the week to July 16.

Last week’s inventory builds had recorded a draw of 7.9 million barrels and an estimated surprise increase in crude inventories of 806,000 barrels, as reported by the American Petroleum Institute (API) earlier.

Oil prices have been particularly volatile this week as growing fears about the Delta variant continue to trail the trajectory of the market.

The likelihood of the variant affecting major markets like the United States, Britain and Japan could dampen demand which had recently returned to pre-pandemic levels.

Despite this, analysts from a top financial institution, JP Morgan forecasts demand growth of over 5 million barrels per day from next month.

They said global demand is expected to average 99.6 million barrels per day in August, up by 5.4 million barrels per day from April.

But they also said: “We only see 4Q21 demand recovering another incremental 330,000 vs a normalised 2019 baseline as colder weather sets in for the northern hemisphere and peak travel season is behind us.”

Earlier, Goldman Sachs said it expects oil prices to spiral in the coming weeks due to the risks from the Delta variant and the slower supply developments relative to recent mobility gains.

It noted that with most of its expected summer demand gains already achieved and with growing headwinds from the Delta COVID-19 variant, higher prices will shift from the demand to the supply side, with upside risks to price forecasts in the coming months.