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Futures Movers: Oil prices rise as data show a third straight weekly drop in U.S. crude inventories

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Oil futures rose Wednesday, finding support after U.S. government data revealed that domestic crude inventories fell by nearly 13 million barrels, down for a third consecutive week, as traders awaited this weekend’s OPEC+ decision on crude production levels.

U.S. and global benchmark crude prices are heading for a monthly loss which would be the fifth monthly loss in six months as traders looked for any signs of an easing of China’s COVID restrictions.

Price action

West Texas Intermediate crude for January delivery
CL.1,
+2.75%

CL00,
+2.75%

CLF23,
+2.75%

rose $2.71, or 3.4%, to $80.91 a barrel on the New York Mercantile Exchange, on track to settle at the highest since Nov. 22, FactSet data show. Prices based on the front month still traded down by more than 5% for the month.

January Brent crude
BRNF23,
+2.81%
,
the global benchmark, was up $2.57, or 3.1%, at $85.60 a barrel on ICE Futures Europe. Prices for the contract, which expires at the end of the trading session, was down 7.7% for the month. February Brent
BRN00,
+2.82%

BRNG23,
+2.82%
,
the most actively traded contract, gained 3.7% to $87.36 a barrel.

Back on Nymex, December gasoline
RBZ22,
+2.87%

rose 3% to $2.4011 a gallon, while December heating oil
HOZ22,
+1.44%

was up 1.9% at $3.3575 a gallon. The December contracts expire at the end of the session.

January natural gas
NGF23,
-5.02%

traded at $7.122 per million British thermal units, down 1.6% Wednesday, but up around 7.8% for the month.

Supply data

The Energy Information Administration on Wednesday reported that U.S. crude inventories dropped 12.6 million barrels for the week ended Nov. 25. That followed two consecutive weekly losses.

On average, analysts forecasted a decline of 4.4 million barrels, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute said late Tuesday that U.S. crude inventories fell 7.9 million barrels last week, according to news reports.

The EIA also reported weekly inventory increases of 2.8 million barrels for gasoline and 3.5 million barrels for distillates. The S&P Global Commodity Insights survey had called for increases of 600,000 barrels for gasoline and 800,000 barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 400,000 barrels for the week, the EIA said, while stocks in the Strategic Petroleum Reserve declined by 1.4 million barrels.

China and OPEC+

Crude has also found support on expectations China will move to begin relaxing COVID curbs after a wave of rare protests. China’s restrictions have crimped demand for crude by one of the world’s largest energy producers.

Chinese demand “remains a top source of downside risk, as COVID containment efforts and related protests have created a challenging climate for near-term product demand,” said Robbie Fraser, manager, global research and analytics at Schneider Electric, in a daily note.

“The state of Chinese product demand stands alongside ongoing interest rate increases as the two most prominent downside risks to crude prices,” he said.

See: China’s factory, construction, service activities contract further

Traders are also focused on a Dec. 4 meeting of the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+.

“Oil is still riding the updraft from speculation OPEC will try to wrong foot traders again, getting the most significant bounce per barrel by announcing a surprise production cut. And with the focus shifting to a step down on China’s COVID-zero policies, I do not think anyone wants to be too short,” said Stephen Innes, managing partner at SPI Asset Management, in a note.

Read: U.S. oil taps its lowest price of the year thanks to China as OPEC+ output decision looms

On Tuesday, reports said OPEC+ will hold a virtual meeting Sunday, instead of gathering in person. “Opting for no-drama optics seemingly increases the likelihood of a rollover decision,” Helima Croft, head of global commodity strategy and MENA research at RBC Capital Markets, wrote in a note Tuesday.

Monthly move

For the month, oil prices were lower as “uncertainty emerged as the dominant influence on futures prices,” said Tyler Richey, co-editor at Sevens Report Research.

Oil followed the news tied to China’s zero-COVID policy throughout the month given its influence on energy demand.

Last week, much weaker than expected U.S. economic data “revamped concerns about a potentially deep and painful recession looming ahead,” Richey told MarketWatch. WTI then saw a brief intraday drop on Monday to its lowest price since December, while Brent touched it slowest level since January.

For now, WTI is holding onto its “long-standing range” between $76 and $93 with traders assessing the “fluid fundamental backdrop” as the market begins the final month of the year, he said.

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