Oil prices jumped on Wednesday in early trading as global stock markets rose and crude oil inventories were expected to fall sharply in the U.S., but as the trading day wore on, the gains were quickly erased.
Since the Brexit vote on June 23, the oil markets have seen renewed volatility after weeks of relative calm. Rather than necessarily moving on changes in fundamentals, crude prices have moved sharply with other key financials, including stocks, commodities, and currencies. Wednesday saw a continuation of that trend, with stocks rebounding while investors also moved out of safe-haven assets like the U.S. dollar and gold. Meanwhile, crude oil jumped by 1 percent during early trading.
"My guess is that is pretty much done," Mark Waggoner, president of brokerage Excel Futures, told The Wall Street Journal, referring to the effects of the Brexit. "It's run up. It's overdone. This whole Brexit thing is going to be (headed) to the sideline."
But crude also got a lift from new data that showed oil storage levels would continue to decline. A WSJ survey of analysts predicted U.S. oil inventories would fall by 2.3 million barrels last week. The American Petroleum Institute expected storage levels to decline by a much stronger 6.7 million barrels, a figure that appeared to be largely responsible for the oil price rally in early trading on Wednesday. But late Wednesday morning, the EIA revealed a more modest drawdown of 2.2 million barrels for the week ending on July 1. Following the release of the EIA numbers, crude oil pared back some of its gains and by midday, both WTI and Brent moved back into negative territory. Related: Lockheed Tech Breakthrough Is About To Revolutionize Oil Exploration
Elevated levels of gasoline stocks are also weighing on crude prices. After peaking in February at 258 million barrels, U.S. gasoline stockpiles fell sharply to 242 million barrels in March. But since then, gasoline storage levels have remained nearly flat. That is because refiners ramped up supply in expectation of scorching summer demand. U.S. motorists are indeed hitting the roads at record levels, but there is simply too much supply of refined product right now. That will keep a lid on any crude oil price rally.
China is also not providing a large demand stimulus to the market. "Growth is slipping again ... and things don't seem quite so rosy," HSBC said in a note to clients.
By Charles Kennedy of Oilprice.com
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