Oil Trades Higher On Reduced Stockpiles

Oil traded higher on Wednesday after U.S. crude stockpiles were reduced, which is bullish for the price of oil. On top of a reduction in stockpiles, investors have been quite bullish the last two days after bargain buying has creeped up after the “Brexit” Sell off. While oil traded higher, an unexpected turn of events came in for gasoline. Gasoline stocks, which increased more than expected, lead to the belief that oil would be trading flat for a long time to come. There might be one event that can potentially bring oil higher, and that is a possible strike by oil workers. U.S. crude oil closed up 4.24% higher to $49.88 a barrel, and Brent Crude finished up 3.7% to $50.38 a barrel.

Stockpile Issue Gone

The main reason for oil trading higher was the fact that the reported stockpiles for crude came in less than what was expected. In the case of stockpiles coming in below what was expected, this is a good thing. The U.S. Energy Information Administration — EIA — stated that crude stockpiles fell by around 4.1 million barrels for the week ending June 24th. The fact that stockpiles have been falling by that much is quite impressive. Even more impressive is that this is the sixth straight week where crude stockpiles have fallen. In a global market that has gone through a long standing oil glut, the fact that supplies are drawing down at such a quick pace is a good thing. When stockpiles drawdown it means that the price of oil should head higher. This was a positive catalyst for oil, especially since the reduced stockpiles came in below what analysts were expecting. Analysts expected a drawdown in stockpiles of only 2.4 million barrels.

Brexit Effect

While a reduction in stockpiles was a major contributor to the gains in oil, the fact can’t be dismissed that bargain buyers have been buying up oil and other commodities the last few days thanks to Brexit. The spillover effect of “Brexit” lead to a mass panic, causing a global market selloff. Even oil had no luck with the market sell off. U.S. Crude oil tanked down to $46.33 a barrel, and Brent Crude oil had fallen to $47.16 a barrel on Monday. With the bargain buying in effect, oil has come back from the lows trading to the very important $50 level. While this Brexit effect caused a nice buying opportunity, it should be noted that the $50 level may be a tough one to crack. The last time oil reached the $50 level was back in May 26, and had gone down since then. This time it may test that level and break over. That is clearly dependent upon global demand for oil, and other unforeseen market events.

Gasoline Demand Low

For the short-term oil may trade higher if the market remains on the bullish side.  However, the long-term projection price of oil may be limited due to low demand seen in gasoline. This is confirmed with the data that was released by the EIA. The EIA stated that gasoline stockpiles grew by a very large amount of 1.4 million barrels. Analysts’ only expected a gain of 58,000 barrels. The huge gap increase in the actual stockpiles versus what was expected, shows that demand for gasoline is lacking in the market.

An Event To Watch For

Oil may obtain a short-term gain pending a possible Norwegian strike. Norwegian oil workers are threatening to strike if they don’t receive what they are asking for. Talks are set for June 30 and July 1st, and if no agreement is reached it could spell trouble for oil output in Norway. The workers that could potentially walk off the fields are employed with such companies as: Exxon Mobil, BASF unit Wintershall, and Engie. It is estimated that Norway’s oil, natural gas, and natural gas liquids could be cut by around 7%. This would definitely boost the price of oil in the short-term. Traders may be able to capitalize on such an event if it happens. All eyes are now on whether or not the talks will succeed or fail in the coming days.