U.S. oil benchmark touches 2023 high, buoyed by supply concerns

Price action

• West Texas Intermediate crude for September delivery
  CL00,
  +0.84%

  CL.1,
  +0.84%

  CLU23,
  +0.84%
  was up 27 cents, or 0.3%, at $83.19 a barrel on the New York Mercantile Exchange, after trading as high as $84.65, its highest intraday level since November, according to FactSet.

• October Brent crude
  BRN00,
  +0.74%

  BRNV23,
  +0.74%,
  the global benchmark, was up 31 cents, or 0.4%, at $86.48 a barrel on ICE Futures Europe.

• Back on Nymex, September gasoline
  RBU23,
  +1.99%
  rose 1.2% to $2.879 a gallon, while September heating oil
  HOU23,
  +2.45%
  was up 1.8% at $3.139 a gallon.

• September natural gas
  NGU23,
  +6.73%
  jumped 7.5% to $2.984 per million British thermal units.

Market drivers

“Crude oil prices have also continued to edge higher as rising tension between Russia and Ukraine, prompts concern that Ukraine might target Russian infrastructure and disrupt supply in the Black Sea,” said Michael Hewson, chief market analyst at CMC Markets U.K., in a note.

Ukrainian sea drones last week attacked an oil tanker sanctioned by the U.S. for working with the U.S. military, The Wall Street Journal reported. A senior Ukraine official this week said Russian ports and ships on the Black Sea, including tankers carrying crude to Europe, could be justifiably attacked by the Ukrainian military, Politico reported.

The Energy Information Administration on Wednesday said U.S. crude inventories rose by 5.9 million barrels in the week ended Aug. 4. But gasoline inventories dropped by 2.7 million barrels and stocks of distillates, which include heating oil and diesel fuel, declined by 1.7 million barrels.

Analysts surveyed by S&P Global Commodity Insights, on average, had forecast a 930,000 barrel drop in crude inventories last week. Gasoline stocks were forecast down 1.1 million barrels, with distillates unchanged.

“Crude oil prices came off their best levels in reaction to the latest crude oil inventories report, showing a surprisingly large build of 5.9 million barrels of crude last week. However, the other aspects of the report were strong as refinery utilization rate increased sharply and stocks of oil products dropped,” said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note.

The American Petroleum Institute, an industry trade group, said late Tuesday that U.S. crude inventories rose by 4.1 million barrels last week, according to a source citing the data, while gasoline and distillate inventories fell.

Tighter supply, driven in particular by voluntary cuts by Saudi Arabia and Russia, has been credited with lifting crude over the past six weeks, with Brent and WTI ending Tuesday near 2023 highs set in April.

WTI’s break above the April high means that traders who were skeptical of OPEC+’s efforts have been proven wrong, Razaqzada said.

“As more bearish speculators now step aside, oil prices should continue trending higher for as long as there are no major demand worries. So, a move up to $85 looks increasingly likely from here,” he wrote, but cautioned that a dip in the short term wouldn’t be a surprise as futures are “clearly overbought.”

Gains for natural gas, meanwhile, were tied to falling production and the possibility of worker strikes at some liquefied natural gas, or LNG, export plants in Australia, potentially creating supply shortages in the global LNG market, said Victoria Dircksen, commodity analyst at Schneider Electric, in a note.