Oil Prices Climb as Crude Inventories Decline

• Oil prices climbed after the EIA reported a surprise crude oil inventory draw, reversing an earlier decline caused by concerns about a recession.
• Gasoline and distillate inventories saw builds, following earlier estimates of larger increases.
• Geopolitical tensions in the Middle East provided some support for oil prices, despite evidence of weakening fuel demand in China.

Crude oil prices climbed higher today after the Energy Information Administration reported an inventory decline for the week to August 2. Commercial crude inventories, excluding the SPR, drew by 3.7 million barrels week on week.

This compared with a draw of 3.4 million barrels for the last week of July.

A day earlier, the American Petroleum Institute reported an estimated build of 180,000 barrels for the week to August 2, surprising markets and pressuring oil prices. The API also estimated large builds in gasoline and middle distillate inventories for the period.

In fuels, the EIA estimated inventory builds.

Gasoline stocks added 1.3 million barrels in the week to August 2, which compared with a draw of 3.7 million barrels for the prior week.

Production of gasoline stood at an average of 10 million barrels daily last week, a little bit higher than the average for the previous week.

In middle distillates, the EIA estimated an inventory build of 900,000 barrels for the week to August 2, which compared with a build of 1.5 million barrels for the previous week.

Middle distillate production averaged 5 million barrels daily last week, another moderate increase on the previous week.

Oil prices, meanwhile, remained weaker after a slump on Monday triggered by a stock market rout on concern about the health of the U.S. economy and the prospects of a recession after a weaker than expected jobs report released last Friday.

The API’s report on Tuesday contributed to the bearish sentiment and fresh Chinese oil import data out earlier today also fueled bearishness. China’s July oil imports fell by 12% on the year and 3% on the month, to the lowest level since September 2022, customs data showed.

Fuel demand in China has been weakening on the back of lower construction activity and the consequent slowdown in diesel demand.

On the bullish side, fears of an escalation in the Middle East continue to run high in anticipation of Iran’s retaliatory strike against Israel after the latter killed the leader of Hamas in Tehran.

By Irina Slav for Oilprice.com

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