WTI soars to 15-month highs as US inventories tumble
West Texas Intermediate(NYSE:WTI) soared to fresh 15-month highs on Wednesday after the weekly EIA report showed declining US inventories. The Energy Information Administration, which measures weekly crude oil changes, showed that the supply of US crude declined by 9.874 million barrels last week, compared to expectations of a 2.900 million shortfall. The draw placed a premium on WTI futures, which spiked immediately after the EIA report and continued throughout the day. WTI for August delivery rose more than 2 percent, closing the New York session at $106.61 a barrel.
The July 5 WTI levels marked the second straight week of huge draws in US crude inventories, signalling that domestic production is beginning to flat-line. More importantly, large inventory draws signal increased consumer spending, as more people hit the roads for summer driving. This in turn has fueled optimism that the US economy is recovering ahead of Friday’s Consumer Sentiment Index.
Crude prices were higher across the board on Wednesday. Brent for August delivery advanced 0.65 percent to reach $108.51 a barrel. Although the global benchmark has advanced by more than 5.5 percent in July, Wednesday’s gains weren’t enough to extend its premium to WTI. By the end of New York trade, WTI had narrowed its discount to Brent to less than $2, its narrowest spread since December 2010.
Crude prices dipped only momentarily following the release of the June FOMC meeting minutes, which revealed that policymakers want more reassurance before tapering the Fed’s monthly asset purchase program. This in turn weakened the US dollar at the expense of broadening appeal for commodities, especially crude, which is sold in US dollars.
Demand for WTI has surged in July, advancing by more than 9.5 percent. Last week WTI broke the $100 a barrel mark for the first time since September. The sudden spike in oil prices is partly caused by Egypt’s growing instability, which could threaten the future supply of Mideast oil. The prolonged conflict in Syria is likely to have a similar effect, despite OPEC’s recent forecast calling for weaker global demand in 2014.
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