Oil prices had a rebound later on Wednesday after dropping earlier in the day after the Energy Information Administration (EIA) reported a surprise crude oil draw.
Brent crude was up by 0.76% to trade at $85.73 per barrel, the WTI was up by 1.02% to trade at $83.81 per barrel, while the Bonny light crude was up 0.45% to trade at $84.36.
The EIA reported that crude oil had last week dropped by 400,000 barrels, a 3-year low, barely a week after it reported a sizeable oil inventory build that pushed prices lower for a while.
At 426.5 million barrels, inventories remain below the five-year average for this time of the year. Gasoline inventories were down last week, by a sizeable 5.4 million barrels. This compared with a draw of 2 million barrels for the previous week.
Gasoline production last week averaged 10.1 million bpd, as against the 9.6 million barrels per day a week earlier.
In middle distillates, the EIA estimated an inventory decline of 3.9 million barrels. This compared with a flat week-on-week inventory situation for the seven days to October 8.
Middle distillate production averaged 4.4 million bpd last week. This compared with 4.7 million bpd for the previous week.
The global gas crisis has continued to affect oil prices with Brent crude gaining almost 20% since the start of September, while West Texas Intermediate has increased by 21%.
A senior oil markets analyst at Rystad Energy, Louise Dickson, said, “Supply-demand balances show that the market is experiencing a supply deficit, which is spurring deep inventory draws and driving prices upwards. This market tightness is expected to extend into most of 2022, and crude oil supply will only catch up with crude demand by the fourth quarter of next year.”
This has prompted a revision of peak oil demand forecasts, with the International Energy Agency earlier this month warning more investment in new oil production was necessary to avoid more energy crunches.
What you should know
Oil prices have been on the increase for several weeks as the energy sector has been hit with a global gas crisis in recent times with rising natural gas prices as coal, electricity, and natural gas shortages lead to additional demand for crude and it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.
The oil market deficit seems poised to get worse as the energy crunch will intensify with the weather in the north already starting to get colder.