Monday 24 July 2017

Oil hits six-month high as supply drops

Oil advanced to a six-month high on signs US crude inventories are dropping and speculation stimulus measures by the Federal Reserve will weaken the dollar.

Crude stockpiles in the US, the world’s biggest oil consumer, dropped 4.1 million barrels last week, the most since July, the industry-backed American Petroleum Institute said yesterday. The Energy Department will release its own report today.

The Fed, wrapping up a two-day meeting today, may announce a plan to purchase at least $500bn in long-term securities, according to economists surveyed by Bloomberg News.

“We can expect higher prices, maybe up to $90 or even higher,” said Sintje Diek, an analyst with HSH Nordbank in Hamburg.

“We’ve seen higher prices in the last days because of quantitative easing. This means higher inflows into riskier assets. But the fundamental picture hasn’t changed. We’re still oversupplied.”

Oil for December delivery rose for a third day, gaining as much as 79 cents, or 0.9pc, to $84.69 a barrel on the New York Mercantile Exchange, the highest price since May 4.

The contract was at $84.65 at 10:21am London time. Brent crude for December settlement was up 83 cents, or 1pc, at $86.24 a barrel after climbing as high as $86.32 a barrel on the ICE Futures Europe exchange in London.

The dollar has dropped 9.2pc versus the euro since August 27, when Fed Chairman Ben Bernanke said the central bank “will do all that it can” to sustain economic growth, fueling speculation that a resumption of asset purchases would debase the dollar.

Quantitative easing

This policy, known as quantitative easing, may weaken the dollar, bolstering investors’ demand for oil. The US currency declined against most of its major counterparts yesterday, falling 1pc to $1.4034 per euro in New York.

“The news tonight from the Fed on the quantitative easing will be the big thing for the oil market,” said Serene Lim, an energy and commodity strategist at Australia and New Zealand Banking Group Ltd in Singapore. “Everyone is a bit cautious ahead of the report. The inventory levels being drawn down are seen as a positive.”

US crude stockpiles decreased 1.1pc last week to 367.6 million barrels, according to yesterday’s API report. Petroleum supplies declined by 3.2 million barrels to 219.7 million and distillate inventories dropped 4.7 million to 161.4 million, the industry group said.

An Energy Department report today is forecast to show distillate fuel stockpiles, including diesel and heating oil, fell to their lowest level since July.

Inventories probably declined 1 million barrels in the week ended October 29, according to the median estimate from 17 analysts surveyed by Bloomberg News. All respondents said supplies would fall.

US crude inventories probably increased 1.5 million barrels, the survey showed. Stockpiles rose 5.01 million barrels to 366.2 million in the week to October 22, the highest level since July and 13pc above the five-year average.

Bloomberg

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