On Thursday, oil prices held their value after Wednesday’s gains on falling US crude stocks data.  The ongoing trade war between the Trump administration and Beijing weighed down possible gains.  BP photo.

Oil prices underpinned by 5.8 million barrel drop in US crude stocks

On Thursday, oil prices steadied despite the ongoing trade war between the Trump administration and Beijing.  Prices were underpinned by data released on Wednesday showing a drop in US crude stocks by a much larger amount than expected.

At the end of trading, Brent crude was down 5 cents to $74.73/barrel and US light crude dipped 3 cents to $67.83/barrel.  The Canadian Crude Index was even at $42.27.

According to Reuters, options activity showed that some traders were guarding against a possible sharp slide in US crude prices.

“The market is trying to balance the worries about decreased global demand growth and how much extra oil the Saudis and Russians are going to put on,” Gene McGillian, director of market research at Tradition Energy told Reuters.

He added that the larger-than-expected draw in US oil stocks reported by the US Energy Information Administration on Wednesday helped steady oil prices.

“There’s a better fundamental picture than a year ago,” said McGillian.

The United States and China continue to match tariffs in the escalating trade war.  Recently, a 25 per cent tariff on $16 billion worth of each country’s goods was imposed, and since July, the $100 billion in goods from both countries have been hit with tariffs.

Washington is now holding hearings on possibly putting tariffs on another $200 billion worth of Chinese imports and, should that happen, China is expected to respond in kind.

Moody’s Investor Service says the US – China trade war is “expected to shave up to 0.3-0.5 percentage points from China’s real GDP growth in 2019”.  It should also cut 0.25 percentage point from projected US real GDP growth, taking it “to 2.3 per cent in 2019”.

As a result, analysts have cut their forecasts for energy consumption, however, some markets remain tight.

The US EIA reported that US crude stocks fell by 5.8 million barrels last week, more than three times the forecasted amount.

“This week’s report was bullish for crude,” Societe Generale oil analyst Michael Wittner told Reuters. “Crude stocks drew due to sharply lower crude imports and near-record refinery crude runs.”

According to the EIA, US crude production hit 11 million barrels per day (b/d) last week.  Russia, the United States and Saudi Arabia are all now producing about 11 million b/d, or about one-third of global demand.

Reuters reports that in options activity, December 2018 puts for crude at $50/barrel traded, but volume was thin with just a few hundred contracts exchanged.

“The fact that someone even thought it was possible to get there is interesting,” Bob Yawger, director of futures at Mizuho said. “To get to $50 it would need to get ugly between now and then.”

Volume on $50/barrel options were much lower than options in a range closer to the current level.