Oil Rises as Stockpiles at Biggest US Hub Fall to 2014 Low

(Bloomberg) -- Oil rallied for a fourth day as a government report showed US stockpiles dropped last week, exacerbating global supply concerns with shipments from Libyan ports suspended. 

West Texas Intermediate rose as much as 2.4% to trade near $114 a barrel. US crude stockpiles fell 2.76 million barrels last week, according to an Energy Information Administration report Wednesday. Inventories at Cushing, Oklahoma, the largest storage hub in the US, fell to the lowest since October 2014. Data for two weeks was released simultaneously after an outage last week. 

Compounding market tightness, Libya’s state oil company suspended shipments from two key eastern ports, while Iranian media said talks to revive a nuclear deal that could boost the country’s supply ended Wednesday with little effect. Output in Ecuador also has been lower due to ongoing protests. Those curbs to supply come as Shell Plc said spare energy production capacity is running very low, and the company’s chief executive officer painted a bleak picture of the global energy supply.

Read: Can Saudi Aramco Meet Its Oil Production Promises?: Javier Blas

Global oil markets have tightened after a rebound in economic activity, with Russia’s invasion of Ukraine exacerbating the squeeze by upending trade flows. OPEC+ is expected to rubber-stamp another modest supply increase for August, although the cartel has struggled to meet its targets this year.

Oil is heading for the first monthly decline since November after being hit by fears of a global economic slowdown, but prices still are about 50% higher this year. While fears of a global economic slowdown have weighed on futures, demand remains robust for now. US retail gasoline prices remain near record highs, causing pain for consumers. A recovery from Covid-19 and a shortage of refining capacity to make fuels continue to keep prices at record highs. 

Time-spreads that help gauge market health are also flashing bullish signs, while a price marker for Middle Eastern barrels has surged to a record. 

While oil has been supported by renewed supply disruptions, subsidies are helping the demand side. China said it will offer subsidies to refiners and won’t raise domestic prices if international crude surpasses $130 a barrel. Still, the world’s largest crude importer doubled down on the nation’s Covid Zero strategy, raising concerns about the outlook for demand. 

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