U.S. crude reserves drop more than expected

According to the Energy Information Administrations weekly oil reserves report, U.S. Crude Oil Inventories dropped well above expectations. Gasoline and distillate fuel stockpiles also decreased, rebutting projections.

On the New York Mercantile Exchange, WTI crude for August delivery traded at $101.96 a barrel at 14:58 GMT, up 2.37% on the day. Prices ranged between days high and low of $102.16, a 14-month high, and $99.43 respectively. Light, sweet crude has advanced 5.23% so far this week after settling 2.73% higher last week.

Meanwhile, Brent oil for August delivery traded at $105.90 per barrel at 15:00 GMT, up 1.82% on the day. Prices ranged between days high and low of $106.00 and $103.90 per barrel respectively. The European benchmark has gained more than 3.3% so far this week after settling 1.07% higher last week.

In its weekly oil reserves report on Wednesday, the EIA said that Crude Oil Inventories dropped by 10.3 million barrels to 383.8 million as of the week ending June 28. This was above the upper limit of the average range for this time of the year. Refineries operated at 92.2% of their capacity last week. Gasoline production increased, while distillate fuel output decreased.

Gasoline stockpiles fell by 1.7 million barrels, refuting forecasts. Distillate fuel inventories also outperformed projections, decreasing by 2.4 million barrels, whereas expectations were for a gain.

According to a Bloomberg survey, EIA’s report should have shown a 2.25 million barrels drop in crude oil reserves. Gasoline stockpiles were expected to have risen by 700 000 barrels and distillate fuel inventories were supposed to have gained 1 million barrels.

According to APIs report on Tuesday, Crude Oil Inventories dropped by 9.4 million barrels as of the week ending June 28. Gasoline stockpiles fell by 183 000 and distillate-fuel inventories dropped by 2.3 million. The industry-funded American Petroleum Institute’s report however is considered as less reliable since it is based on voluntary information from operators of pipelines, refineries and bulk terminals.

Political conflicts

Oil prices drew further support as political tension in Egypt threatened to close the Suez Canal and the Suez-Mediterranean Pipeline, through which 2.24 million barrels of oil per day flow from the Red Sea to Europe and North America.

Meanwhile, oil production in Libya contracted by a third after protesters shut several oilfields as the country still struggles to maintain stability in the vital for the economy oil industry. In Syria, the U.S. is expected to arm opposition with small arms within the month, which spurred concern of the conflict spreading to neighboring oil producing countries as most of them, including Iran, still support Bashar al-Assad’s regime.

Weaker dollar

Oil was also supported by weakening of the dollar, to which it trades inversely. The dollar index fell by 0.32% by 15:06 GMT, standing at 83.54. As several U.S. economic indicators that were released today showed controversial readings. Payroll processor ADP said the U.S. private sector created 188 00 jobs in June, above projections of 166 000 and May’s revised reading of 134 000. Meanwhile, the U.S. Department of Labor reported that Initial Jobless Claims fell more than expected. People who filed for unemployment assistance during the week ending June 28 stood at 343 000, 2 000 less than the 345 000 forecast and below the preceding week’s revised reading of 348 000.

The employment data, which was a positive sign for Friday’s Unemployment Rate and Non-Farm Payrolls, was offset by the country’s Trade Account deficit figure, which mismatched expectations by almost $5 billion. During May, the U.S. Trade Balance deficit widened to $45.027 billion, well above April’s revised reading of $40.149 billion and expectations for a narrowing to $40.100 billion.

Meanwhile, the ISM Non-Manufacturing Composite also disappointed, marking a lower reading compared to the previous month, while expectations were for an increase. The indicator for June stood at 52.2, well below 53.7 in May and failing to meet projections for a rise to 54.

Investors are now looking ahead into Friday’s key Unemployment Rate and Change in Non-Farm Payrolls indicators, which will provide further information on the pace the U.S. economy is recovering at. Preliminary estimates suggest a 0.1% fall in the Unemployment Rate, 7.5% down from 7.6%. Change in Non-Farm Payrolls are expected to stand at 165 000, down from 175 000 in May.