Futures Movers: U.S. oil prices up a 5th session as domestic supplies post a surprise decline

Oil futures finished higher on Wednesday, buoyed by a surprise weekly decline in U.S. crude inventories and a drop in gasoline stocks to their lowest in almost two years, even as China’s move to bolster coal supplies looked to dull the outlook for oil demand.

“U.S. stockpiles of crude oil and petroleum products declined as demand continues on its recovery and supply growth remains elusive,” said Peter McNally, global sector lead for industrials materials and energy at Third Bridge. “Inventories of all major categories are now at or approaching their five-year seasonal lows” and demand for gasoline and distillates has “fully recovered to pre-pandemic levels.”

The Energy Information Administration reported on Wednesday that U.S. crude inventories fell for the first time in four weeks, down by 400,000 barrels for the week ended Oct. 15.

That defied expectations for an average 2 million-barrel climb expected by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a 3.3 million-barrel increase.

The EIA numbers were “undoubtedly on the bullish side,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. The data helped alleviate an “overbought situation” in crude oil, he said.

On its expiration day, West Texas Intermediate crude for November delivery


rose 91 cents, or 1.1%, to end at $83.87 a barrel on the New York Mercantile Exchange, up a fifth straight session. Front-month contract prices posted the highest close since Oct. 13, 2014, according to Dow Jones Market Data.

December WTI crude

the most active, and now front-month contract, added 98 cents, or 1.2%, to settle at $83.42 a barrel.

December Brent crude

the global benchmark, climbed by 74 cents, or 0.9%, to $85.82 a barrel on ICE Futures Europe, logging the highest settlement since Oct. 3, 2018.

The fall in crude supplies prompted U.S. benchmark oil prices to move up more sharply than Brent, which saw limited gains following news on China. Beijing’s top economic planner this week vowed to use “all necessary means” to roll back record coal prices, The Wall Street Journal reported, including domestic laws that let the government limit profit and prices for essential goods.

“This should pressure the high coal prices to ease lower and, in turn, bring oil prices lower too,” said Brian Swan, senior commodity analyst at Schneider Electric, in a note.

China also ordered all coal mines to operate at full capacity, including during holidays, approved new mines and ordered major coal production bases in north and northwestern China to lower prices by 100 yuan a metric ton beginning Tuesday.

Read: Energy crisis? What experts are saying as world faces historic energy-price crunch

Soaring coal and natural-gas prices helped drive crude to recent highs as coal- and gas-fired power generators, particularly in Asia, began switching to oil.

See: Lofty prices for natural gas may fuel a swing back to oil as a power source

“Oil refiners across the globe are kicking into a higher gear by ramping up output to meet demand coming from the U.S., the [European Union], and Asia,” said Swan. “Of course, high natural gas prices across Europe and plant maintenance periods in the fourth quarter will put some constraints on supply. Some power plants have turned to burning diesel and other fuel stockpiles ahead of winter demand.”

If Chinese regulators artificially force coal prices lower, there will be less fuel switching,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note. The distillate part of the barrel — refined products including gas oil, heating oil, kerosene, jet fuel and diesel fuel — would be particularly vulnerable to China’s coal plan, he said.

“If coal prices are kept at artificially low prices, then switching to heavy distillates for power generation may not happen at the rate at which many of the world’s most reliable bean counters may have thought,” he said.

Also see: Coal-fired electricity forecast to rise in the U.S. for first time in seven years

Meanwhile, the EIA data Wednesday also showed weekly inventory declines of 5.4 million barrels for gasoline and 3.9 million barrels for distillates.

The S&P Global Platts survey had forecast supply declines of 2.2 million barrels for gasoline and 2.4 million barrels for distillates.

At 217.7 million barrels, motor gasoline stocks are at their lowest since November 2019, according to EIA data.

“This is a story of its gasoline and distillates,” said Phil Flynn, senior market analyst at The Price Futures Group. Demand for both were “incredible,” and that going to keep the market supported.

On Nymex Wednesday, November gasoline

rose 1.3% to $2.508 a gallon, the highest close since September 2014, and November heating oil

climbed by 1.2% to $2.592 a gallon — the highest since October 2014.

Crude stocks at Cushing, Oklahoma, the Nymex delivery hub, edged down by 2.4 million barrels for the week, the EIA reported, and total domestic petroleum supplies declined by 100,000 barrels to 11.3 million barrels per day last week.

Natural-gas futures settled higher, with the November contract

up 1.6% at $5.17 per million British thermal units, ahead of Thursday’s EIA weekly update on U.S. supplies.

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