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Oil Slumps as U.S. Fuel Build Neuters Crude Draw

By Barani Krishnan

Investing.com - A larger-than-expected drop in U.S. crude stockpiles during Hurricane Barry hasn’t helped oil bulls, as fuel balances were even higher in that week, dealing a stunning blow to implied demand.

Crude prices fell for a second day in a row on Wednesday as the U.S. Energy Information Administration reported a gasoline stockpile build nearly 4 times higher than expected and a gasoline balance more than 9 times the forecast during the week ended July 12.

U.S. West Texas Intermediate crude was down 75 cents, or 1.3%, at $56.87 per barrel by 2:24 PM ET (18:24 GMT).

London-traded Brent, the benchmark for oil outside of the U.S., slid 71 cents, or 1.1%, to $63.64.

Crude inventories fell by 3.1 million barrels last week, more than the decrease of 2.7 million barrels forecast by analysts, the EIA said.

While a higher-than-expected crude draw usually boosts oil prices, Wednesday’s trading was more influenced by other stockpile numbers on fuel released by the IEA.

Gasoline stockpiles rose 3.6 million barrels, compared with analysts’ expectations for a drop of 925,000 barrels, the EIA said.

Distillate inventories, which include diesel and heating oil, jumped by 5.7 million barrels, versus expectations for a 613,000-barrel increase.

“A solid drop in implied demand has yielded very solid builds to both gasoline and middle distillates,” said Matt Smith, director of commodity research at crude cargoes tracker Clipperdata.

“Next week’s report will likely be even more mottled by the impact of Hurricane Barry."

Barry, which came ashore on Saturday in central Louisiana as a Category 1 hurricane before weakening into a tropical storm, prompted oil companies to shut nearly 74% of production at U.S. Gulf of Mexico platforms as a precaution. Nearly 60% of U.S. offshore oil production remained shut in on Tuesday.

The builds in gasoline and distillates came despite most refineries staying open and running in southeastern Louisiana, where the storm struck. Total U.S. refinery crude runs fell 171,000 bpd, EIA data showed. Refinery utilization rates fell by 0.3 percentage point to 94.4% of total capacity.

In Tuesday’s session, both WTI and Brent lost about 3% each in the prior session, after hints by U.S. Secretary of State Mike Pompeo that nuclear talks with Iran might begin soon, diffusing tensions across the Middle East. Iran later denied any such suggestion.

President Donald Trump also said a trade deal with China might not be concluded in the near term and that he was considering heavier tariffs against Beijing which did not buy U.S. farm products as expected.

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