Oil futures traded sharply lower Wednesday even as a report revealed the biggest weekly drop in domestic crude supplies in nearly two years.
Global benchmark Brent crude slumped as Libya indicated it would resume export activities at its eastern ports, helping allay fears over tight global supplies.
August West Texas Intermediate crude CLQ8, -2.15% the U.S. benchmark, fell $1.59 cents, or 2.2%, to $72.55 a barrel on the New York Mercantile Exchange. It briefly pared losses after the supply data were released but resumed its downtrend thereafter.
September Brent crude LCOU8, -2.99% dropped $2.38, or 2.4%, to $76.48 a barrel on London’s ICE Futures exchange.
The Energy Information Administration reported Wednesday that domestic crude supplies plunged by 12.6 million barrels for the week ended July 6.
“The biggest draw since September 2016 should be a wake up call for the U.S.,” said Phil Flynn, senior market analyst at Price Futures Group. “We are in a tightening supply situation that is not going to get better soon.” The EIA reported a climb in crude supplies last week, but that followed three-consecutive weeks of hefty declines.
The size of the supply drop was more than double the 4.8 million-barrel decline expected by analysts surveyed by S&P Global Platts and the American Petroleum Institute on Tuesday reported had reported a smaller drop of 6.8 million barrels.
Gasoline stockpiles fell by 700,000 barrels for the week, but distillate stockpiles jumped 4.1 million barrels higher for the week, according to the EIA. The S&P Global Platts survey forecast a supply decrease of 1 million barrels for gasoline and a rise of 1.7 million barrels for distillate stocks.
On Nymex, August gasoline RBQ8, -1.69% fell 1.3% to $2.131 a gallon, while August heating oil HOQ8, -2.19% shed 1.8% to $2.181 a gallon.
Meanwhile, Libya’s state-run National Oil Corp. lifted force majeure on eastern oil ports on Wednesday after the ports were handed back from an armed faction, paving the way for a resumption of full production.
The move was a “major contributor” to lower prices on Wednesday, said Bjornar Tonhaugen, vice president for oil markets at consultancy Rystad Energy AS, estimating around 700,000 barrels of oil a day would eventually be returned to the global market.
“The situation in Libya is very precarious right now and challenging on the geopolitical front,” Tonhaugen said, adding that the risk of further disruptions remained.
Brent prices came within a hair of a more than three-year high this week as supply issues around the world bolstered the market. Libya’s unplanned outage was among the biggest drivers, but other factors including problems in Canada, and strikes in Norway.
Trade tensions between the U.S. and China also caught investors’ attention after the U.S. said Tuesday that additional tariffs were being considered on Chinese goods. The U.S. last week launched tariffs on $34 billion worth of Chinese exports to America.
“If the U.S. implements this additional tax on $200 billion of imported Chinese goods, it will be difficult for China not to impose greater taxes on commodities imported from the U.S.,” said Olivier Jakob, head of energy consultancy Petromatrix.
China was the second-largest importer of U.S. crude in the first quarter of the year, according to data published by the EIA. As yet, China hasn’t imposed tariffs on U.S. crude.
In a monthly report released Wednesday, the Organization of the Petroleum Exporting Countries said it expects world oil demand this year to grow by 1.65 million barrels a day to 98.85 million barrels a day—unchanged from its previous forecast.
Oil production from OPEC’s 15 members, which now includes the Republic of the Congo, averaged 32.33 million barrels a day in June, up 173,000 barrels a day from a month earlier, OPEC said, citing secondary sources.
Rounding out energy action, August natural gas NGQ18, +1.40% traded at $2.82 per million British thermal units, up 1.2%, ahead of Thursday’s EIA update on U.S. supplies of the fuel.