Oil Inventory Drawdown Boosts Oil Higher Since June

Oil closed higher on Wednesday after it was reported that there was a weekly drawdown in U.S. crude inventories. This was a major part in why oil prices traded higher, and is highly bullish for the next few weeks. In addition to a drawdown in crude inventories, many investors are optimistic for the prospect of inventories after the OPEC deal. Both of these events are highly bullish for the price of oil. WTI crude oil closed higher by 2.3% to $49.83 a barrel. Brent crude oil closed higher by 2.1% to $51.92 a barrel.

Crude Drawdown

The main component of oil trading higher was the fact that there was another weekly drawdown of crude inventories. The Energy Information Administration — EIA — reported that crude inventories fell by 3 million barrels last week. This greatly differs on the premise that analysts expected inventories to gain by 2.6 million barrels. There are two key positive points with respect to this released data. The first is that the final number came in much better than estimates. When something such as this happens it tends to be a driver in bringing the price of oil higher. The second point is that this is the fifth week in a row where there has been a drawdown in crude inventories. That is a very important point to keep in mind, because for many years now oil has been trading lower thanks to a global glut. Even then, having a drawdown of crude inventories for five weeks in a row insinuates that there is some type of a trend forming. That means that next week and the following weeks might see a continuation of a drawdown of inventory. It is good to see that inventories continue to fall in the face of a major supply problem. Despite crude inventories dropping by 26 million barrels since September, the inventory level still remains the highest in over a century. Still, it is good to see that barrels of oil are not building up as much as they used to.

Power Deal

There is no doubt that the crude inventories drawdown had boosted the price of oil on Wednesday, and over the last few weeks. There is, however, something else that is driving the price of oil higher. It is the recent deal by OPEC made in order to reduce the amount of oil output in the global market. This really should help alleviate pricing pressures in both the short-term and long-term side of things. Taking it one step further, it was announced that the OPEC nations set a date for a meeting in Istanbul between October 8  through the 13th. There the nations will discuss the best method for implementing the deal that was reached a few weeks ago. The deal will definitely be a big help for the price of oil because it will take out a lot of supply from the market. It won’t be just a few millions of barrels being moved out of the market. Instead, it will be between 32.5 million and 33 million of barrels per day. That is a lot of barrels to be cutting out of the oil market. This is especially true accounting for the fact that the deal would be in place for at least one year.

Trading Oil

The price of oil should see plenty of momentum after these positive events have taken place. Still, the technicals are lining up properly and it is highly likely that such levels may even be reached. One example of this is Brent crude oil which traded above $50 a barrel for a very long time. It won’t be long before WTI crude oil starts to head above the $50 level as well. With that kind of momentum there is a good probability that the price of oil could head higher. It all depends on what final negotiations take place in Instanbul in a few weeks. If the price of oil can penetrate the $60 level then it will be in good shape according to technical levels. That means that the price of oil should easily soar higher. As long as there are no other near-term headwinds oil should stay above the $50 a barrel level.