US oil futures rose more than 1% on Thursday, lifted by a steep drop in US crude inventories, especially at the benchmark’s delivery hub due to increased demand with the start-up of two new West Texas pipelines.
The approach of Hurricane Dorian toward Florida also raised fears that offshore US crude producers may slow output if the storm passes into the Gulf of Mexico over the weekend, analysts said.
The storm is forecast to strengthen and become a highly dangerous Category 4 hurricane on Sunday, the National Hurricane Center said.
Meanwhile, international benchmark Brent oil edged up, remaining above $60 a barrel as it withstood pressure from concerns about economic growth.
West Texas International (WTI) crude was up 82 cents, or 1.5%, at $56.60 a barrel by 10:48 a.m. CDT. Brent crude was up 28 cents at $60.77 a barrel.
“WTI is definitely gaining on Brent after the inventory data,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “But there’s a storm premium in the WTI price, as well. The track of the storm is kind of dangerous for Gulf of Mexico production.”
Government data on Wednesday showed US crude stocks dropped last week by 10 million barrels to their lowest since October as imports slowed, while gasoline and distillate stocks each fell by over 2 million barrels.
Inventories at the nation’s main delivery hub in Cushing, Oklahoma, where WTI futures are priced, slumped last week by nearly 2 million barrels to their lowest since December, the data showed.
Cushing stocks have dropped since the government report by over 300,000 barrels, traders said citing market intelligence firm Genscape’s midweek report.
The drop came after two new pipelines opened in the Permian Basin earlier this month, flowing crude to the US Gulf Coast and tightening supplies at Cushing.
EPIC Midstream Holdings LLC and Plains All American Pipeline LP both opened new lines from the Permian to Corpus Christi, Texas, in mid-August. The lines will eventually have a combined total capacity of more than 1 million barrels per day (bpd), the companies have said.
As shippers send Permian crude to the Gulf Coast instead of Cushing, “there’s more competition for Cushing barrels,” said Andy Lipow, president of Lipow Oil Associates in Houston. “You’ll see a continued decline in Cushing inventories.”
Concerns about a slowdown in economic growth due to the trade war raging between the United States and China, the world’s biggest oil consumers, along with the potential hit to oil demand, are keeping prices in check.
China’s commerce ministry said on Thursday China and the United States were discussing the next round of face-to-face trade talks scheduled for September, but hopes for progress hinged on whether Washington could create favorable conditions.
Media reports that China will not retaliate anytime soon against the United States because of new US tariffs “is tamping down fears of the trade wars,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.