Oil Higher After US Crude Surprise Drawdown Larger than Expected

Crude rose on Wednesday after the Energy Information Administration (EIA) published the weekly US crude inventories report. Crude and gasoline inventories registered bigger drawdowns than expected and drove prices higher.

Oil prices had surged on Tuesday after US President Donald Trump tweeted encouraging developments with China. A sit down with Chinese President Xi as part of the G20 meeting in Japan at the end of the month appears to be in the works. The Chinese official media confirmed that the two leaders are talking with a possible talk during the G20. The trade war between the two largest economies has been a negative factor for energy prices.

The Fed meeting this week got an even bigger spotlight after European Central Bank (ECB) President Mario Draghi said he is ready to cut rates if necessary. The US central bank now appears close to signalling an imminent rate cut, to stimulate the economy and avoid falling into a recession.

The anxiety around supply disruptions has died down as trade optimism is surging. Middle East conflict is sure to influence crude prices, with a frenetic end to the month of June as the G20 meeting and more details to emerge on the possibility of an extension to the OPEC+ supply cut agreement.

Crude prices will await the end of the Fed’s meeting as the market is divided on the outcome. The dollar could weaken further if a rate cut is signalled in the short term, but a less than dovish statement and press conference could end up in a stronger dollar and walk back some of the gains in oil.

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