Large Crude Draw Spurs +4% Price Move

Crude closed yesterday with hefty gains of $2.60/bbl thanks to a strongly bullish EIA and, to a lesser extent, production shutdowns along the Gulf Coast in anticipation of Tropical Storm (or potentially Hurricane) Berry. Crude oil this morning is trading steady at $60.51.

Fuel prices are moving lower as refiners increase their output and alleviate concerns of fuel shortages. Diesel is trading at $1.9845, down 0.7 cents from yesterday’s close. Gasoline, which closed above $2 yesterday for the first time since May, is currently at $1.9959, down 0.9 cents.

The EIA yesterday revealed another hefty draw from crude inventories, echoing the nearly 13 MMbbl draw two weeks ago. The crude de-stocking pattern began late this year, with inventories peaking in June rather than April/May as in years past, but recent draws have quickly drawn inventory levels closer to the average and away from five-year highs. Contributing to the large crude draw were declining imports, off by roughly 2 million barrels from last week, and rising refinery utilization. While the East Coast has utilization rates below 70% following the PES refinery shutdown, the rest of the country is generally hovering near 96%-97% utilization, keeping steady pressure on inventories.

Fed Chairman Powell also contributed to yesterday’s upward price action, commenting that recent data has now swayed the Fed’s outlook on the need for rate cuts this year. With the economy weakening, interest rate cuts serve as a financial stimulus that make it cheaper for business to borrow money to invest, stimulating more economic activity. Low interest rates also weaken the US dollar, which causes commodity prices such as oil (denominated in US dollars) to rise.

Weather has also been an important factor for near-term prices. The storm system in the Gulf has officially become Tropical Storm Berry and is expected to briefly reach low-level hurricane status before hitting the Louisiana coastline. Travelling over a large swath of offshore oil rigs, the storm will temporarily affect oil production rates, which could prop up near-term prices, especially if rigs stay offline for a prolonged period.