US Crude Stockpile Drop Fuels Oil Market Surge

Oil prices continued to rise, extending their largest daily gain in a month, as US crude stockpiles keep decreasing.

Brent crude surpassed $85 a barrel, climbing 1.6 percent on Wednesday, while West Texas Intermediate approached $83. Data from the Energy Information Administration showed that US crude inventories dropped by 4.87 million barrels last week, marking the third consecutive week of declines and the lowest level since February. Although it is typical for inventories to decline at this time of year, current levels are below the five-year seasonal average.

Despite supply cuts from OPEC+ supporting oil prices this year, increased production from non-OPEC countries has balanced these cuts. Additionally, expectations of a more relaxed monetary policy from the US have bolstered crude prices by enhancing the appeal of risk assets and weakening the US dollar. A weaker dollar makes dollar-denominated commodities more attractive to international buyers.

Timespreads have also strengthened, indicating robust near-term demand. The prompt spread, or the difference between Brent’s two nearest contracts, is now more than $1 a barrel in backwardation—when the nearest contract trades higher than the next—compared to 80 cents a month ago.

Futures are “breaking away from a losing streak as a substantial correction in the US dollar supports oil prices,” noted Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova Pte. She added that a sharper-than-expected drop in US stockpiles suggests strong consumption, which could alleviate concerns about China’s economic growth.

Looking ahead, oil prices have maintained steady gains despite global economic uncertainties. The continuous decline in US crude stockpiles and anticipated looser monetary policy actions have provided support. Moreover, timespreads suggest that near-term demand remains strong, pointing to a positive short-term outlook for the oil market.