Oil prices advanced by roughly 1% on Wednesday, driven by a larger-than-anticipated reduction in U.S. crude stockpiles and a weaker U.S. dollar, despite concerns about slower economic growth in China.
As of 10:34 a.m. EDT (1434 GMT), Brent crude futures climbed 96 cents, or 1.2%, to $84.69 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude increased by $1.36, or 1.7%, reaching $82.12 per barrel. This comes after Brent settled at its lowest point since June 14 and WTI since June 21 in the previous session.
The price difference between Brent and WTI narrowed to approximately $3.82 per barrel, the smallest gap since October. This narrowing spread reduces the incentive for energy companies to incur the cost of shipping crude to the U.S. for export.
The Energy Information Administration (EIA) reported that U.S. energy firms withdrew 4.9 million barrels of crude from storage in the week ending July 12, significantly more than the 30,000-barrel decline forecasted by analysts in a Reuters poll and the 4.4 million-barrel drop reported by the American Petroleum Institute (API).
Additionally, U.S. refining margins, as indicated by the diesel and 3-2-1 crack spreads, fell to their lowest levels since December 2021 and January 2024, respectively.
A weaker U.S. dollar, which hit a 17-week low against a basket of other major currencies, further supported oil prices. A declining dollar tends to increase oil demand by making dollar-denominated commodities cheaper for holders of other currencies.
George Khoury, global head of education and research at CFI, noted that rising geopolitical risks also bolstered crude prices. Tensions in the Middle East and Europe, particularly an attack on a Liberia-flagged oil tanker in the Red Sea by Iran-aligned Houthis in Yemen, heightened these risks.
Conversely, China, the world’s largest oil importer, reported a second-quarter economic growth rate of 4.7%, the slowest since Q1 2023. This has tempered some of the gains in crude prices. “Any announcement from the Third Plenum in Beijing this week is likely to shape the market sentiment due to the size and importance of China’s oil demand growth,” said Rystad Energy’s senior oil analyst Svetlana Tretyakova, referring to a significant economic leadership meeting in China.
Analysis:
This shift in oil prices presents a clear opportunity for investors. The significant drawdown in U.S. crude stockpiles suggests increased demand or decreased supply, both of which typically drive prices higher. Additionally, a weaker dollar enhances the purchasing power of international buyers, potentially boosting oil demand further.
Profit Potential:
Investors who anticipated these factors and took long positions in oil futures or oil-related equities likely saw considerable gains. The broader economic context, including geopolitical risks and monetary policy shifts, suggests that strategic investments in the energy sector could continue to yield profits.
👉Explore AI-powered Automated Trading Today! Register for a free trial now!
✅Read about the automated trading software on Investing.com
