Oil up on US inventory drop, supply restrictions

Oil was up on Wednesday morning in Asia, with Brent crude moving back above the $40 mark. Large falls in US inventories, combined with likely supply cuts boosted prices.

Brent oil futures surged 2.27% to $40.76 by 11:52 PM ET (3:52 AM GMT), above the $40 mark, and WTI futures rose 2.47% to $38.59.

US crude stockpiles fell steeply by 8.01 million barrels for the week ending October 30, the latest American Petroleum Institute data showed. Forecast prepared by Investing.com had expected a 600,000-barrel build. The sharp fall boosted oil prices by over 3% in late trading yesterday, with the market holding on to its gains in Asia this morning.

Adding to positive investor sentiment is the likelihood of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group led by Russia and known as OPEC+, maintaining current production restrictions. Algeria, this year’s holder of the OPEC presidency, Saudi Arabia, and Russia are pushing to extend the supply cuts well into 2021.

“They can’t afford to let prices slip beyond where they were here recently … there’s still a lot of optimism that oil in the long-term will be OK, so traders are looking at buying any kind of significant dip in the market.” RJ O’Brien & Associates LLC senior market strategist Josh Graves told Bloomberg.

However, oil still has considerable ground to make up after slumping over 10% in the previous week over concerns about the Covid-19 pandemic’s escalation slashing demand and the uncertainty over today’s US presidential election outcome.

“The market is … cautious heading into the US presidential election … the two contenders have significantly different energy policy platforms, which could impact the crude oil demand,” ANZ Research said in a note.

“We expect a Biden victory to weigh on crude prices in the medium term,” the note added, referring to US Democratic challenger Joe Biden.

Investors await crude oil supply data from the US Energy Information Administration, due later in the day.

First published on Investing.com