WTI Crude Soars on Tailwinds of Saudi July Export Cuts

U.S. benchmark West Texas Intermediate (WTI) is up over 2.9%, with Brent up only half that on the day, after the EIA reported a larger-than-expected draw on U.S. crude stockpiles and a weakening U.S. dollar. U.S. crude oil inventories have drawn down more than 20 million barrels over the last three weeks as driving season props up demand.

On Wednesday at 5:16 p.m. ET, Brent crude was trading up 1.72% at $85.17, up $1.44 on the day, while WTI was trading up 2.90% at $83.10, for a gain of $2.34 on the day. The price of the OPEC basket of 12 crudes was at $84.44.

The EIA reported an inventory draw of 4.9 million barrels for the week to July 12, on top of a 3.4-million-barrel draw for the previous week, with U.S. crude inventories now around 5% lower than the five-year average for this time of year. 

Both the weekly inventory report and the flagging dollar beat out continuing negative sentiment on economic growth concerns in China, which has curtailed imports, weighing on overall global crude oil demand. China’s Q2 economic growth clocked in at 4.7%--its slowest since the first quarter of last year. 

A flagging U.S. dollar typically boosts oil demand.  

While both the Brent crude and WTI crude benchmarks have seen gains over the past week, WTI has seen more aggressive gains. Brent’s premium to WTI is now down to $2.12. 

The market is now in a state of backwardation, with front month contracts trading at a significant premium to those further out. Premiums for the first-month contract to the six-month contract are now at $3.41 in one of the clearest indications that the market is viewing crude as tightly supplied for prompt deliveries.

U.S. crude oil exports have been riding some nice tailwinds from Saudi Arabia’s July export cuts so far, likely further lowering U.S. crude inventory this month. 

Bloomberg reported that Saudi Arabia’s overseas oil shipments dropped to a 10-month low in June, sitting at around 168 million bpd for the month (~5.6 million bpd). According to Bloomberg, this figure is only 250,000 higher than the lowest point during the pandemic.

Saudi Arabia isn’t the only major OPEC+ country that’s dialing back its crude exports this summer, According to HFI Research, Russian crude exports have fallen from 5 million bpd in June to below 4 million bpd so far in July.

Russia isn't fucking around huh? pic.twitter.com/yNH48SZfuj

— HFI Research (@HFI_Research) July 17, 2024

At the same time, U.S. crude exports to Europe have also dropped off, hitting a two-year low in June, Reuters reported, down 14% from May, largely as a result of the narrowing Brent-WTI spread. 

By Julianne Geiger for Oilprice.com

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