Oil futures climbed for a third straight session on on Thursday, with global benchmark Brent crude prices scoring their highest finish since October 2018. Oil found support after data on Wednesday revealed a drop in U.S. crude inventories to their lowest level since 2018, along with strong refinery demand, as offshore crude production continued to see a slow recovery in the Gulf of Mexico in the wake of Hurricane Ida, which made landfall on the Louisiana coast on Aug. 29. It’s been a “risk-on day across the board,” said Tariq Zahir, managing member at Tyche Capital Advisors.

Oil often rises along with the broader stock market, which saw benchmark indexes climb on Thursday. “Another storm is expected to become a major hurricane in the Atlantic, but the long term track is still uncertain at this point,” Zahir told MarketWatch. “Between the risk on environment in equity markets and uncertainty of future storms, we expect to maintain strength in the energy markets until more clarity is achieved.”

On Thursday, West Texas Intermediate crude for November delivery the U.S. benchmark, rose $1.07, or 1.5%, to settle at $73.30 a barrel on the New York Mercantile Exchange. November Brent crude the global benchmark, added $1.06, or 1.4%, to $77.25 a barrel on ICE Futures Europe. Both benchmarks were up a third straight session. WTI crude saw the highest front-month contract finish since July 30, while Brent settled at the highest price since Oct. 29, 2018, according to Dow Jones Market Data.

Oil jumped 2% Wednesday after the Energy Information Administration reported that U.S. crude inventories fell for a seventh straight week.

It’s typical to see crude supply declines at this time of year, and supply to slowly come back from previous disruptions, Zahir told MarketWatch. Several forecasts also call for a much colder winter in several areas, he said, which could lift demand for energy. However, the situation in China regarding property giant Evergrande is “still playing out,” he said. “With China such a large consumer of energy, this could hurt [its] economy.” There’s also continued worries tied to the COVID-19 delta variant, so there are “risks to the downside for energy markets,” said Zahir. Even so, energy prices may stay at current levels, or “even grind higher if these risks to not materialize.”

The drop in crude supplies took total U.S. crude inventories to just below 414 million barrels, the lowest since October 2018, noted Warren Patterson, head of commodities strategy at ING. And while U.S. output rose by 500,000 barrels a day over the week to 10.6 million barrels a day, it’s still well below the 11.5 million barrels a day seen before Hurricane Ida, he said, while data shows refiners continue to recover at a quicker pace than producers after the storm.

On Thursday, October gasoline added 2.2% to $2.172 a gallon and October heating oil rose 1.7% to $2.249 a gallon.

Crude was also lifted as equities and other assets perceived as risky were boosted on relief over the lack of any hawkish surprises from the Federal Reserve on Wednesday, as it signaled it could announce the scaling back of its monthly asset purchases as early as November, said analysts at Sevens Report Research, in their latest newsletter.

Worries around China’s indebted Evergrande property giant — which sank oil, equities and other assets perceived as risky on Monday — faded for now, after the People’s Bank of China made large liquidity injections into the financial system, helping ease fears of spillover effects from a possible default. “Looking past the near-term noise of broad market volatility, the outlook for the energy markets remains favorable as long as no new contagion fears like we saw with Evergrande trigger another wave of broad risk-off money flows, as demand is seen steady amid an ongoing economic recovery while the supply outlook remains stable given a disciplined group of OPEC+ members,” analysts at Sevens Report Research wrote.

 

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