Can a drop in US stockpiles hold price amid mixed market signals?

Oil is steady near a two-month high, though mixed signals are emanating from the market. West Texas Intermediate (WTI) moved higher to break $84 a barrel, after notching its highest close since mid-April on Wednesday. Brent crude also inched up slightly on Thursday.

The demand came as US crude inventory posted a huge draw — it declined by more than 12 million barrels last week, registering its biggest drop in almost one year. In addition, Reuters reported that Rosneft and Lukoil said they would cut export of oil from the Black Sea port of Novorossiysk in July as they resume operations at their refineries.

However, this left any gains in check following Saudi Aramco's move to cut the price of its key Arab Light grade price by 60 cents a barrel to $1.80 a barrel above the regional benchmark for August shipments, less than the forecast 90-cent cut by traders and refiners polled.

Another factor that contributed to the market was the reduced threat to oil and gas production in the Gulf of Mexico by Hurricane Beryl. Information from the hurricane centre and the Bureau of Ocean Energy Management showed that the storm passed without striking major drilling areas and platforms in US federal waters. Major platforms, notably Exxon Mobil Corp's Hoover, Occidental Petroleum Corp's Boomvang and Shell Plc's Perdido, that were on the path Wednesday are now clear.

Oil prices have risen more than 14 per cent from early June lows on OPEC+ limitations on supply and expectations of stronger summer demand. This has been accompanied by geopolitical risks and the bullishness of the equity markets. One offset has been worrying about demand in China, the world's largest importer of crude. Buying by China has been lacklustre, sparking questions over future appetite.

“Geopolitics and weather are keeping oil prices well supported in the $80s for now,” Citigroup Inc. analysts including Eric Lee said in a note. “There are reasons to believe that current strength can ease, based on physical market and demand signals, even though hurricanes need to be carefully watched.”

In the final analysis, record decline in US stockpiles and supply cuts by big producers underpin prices as reduced pricing from Saudi Aramco and weak demand signals from China combine to balance the market.