Oil prices rose for a second day today as data showed a draw in US inventories, but were headed for a weekly loss amid uncertainty about global supplies fuelled by an OPEC+ impasse.
Brent crude oil futures were up 27 cents, or 0.4%, at $74.39 a barrel this morning while US West Texas Intermediate futures were up 39 cents, or 0.5%, at $73.33 a barrel.
Prices on both sides of the Atlantic were on track for a weekly loss of more than 2%, dragged by the collapse of output talks between the Organization of the Petroleum Exporting Countries and allies including Russia, or OPEC+.
"The drop in stockpiles reinforced views that demand was picking up as the U.S. driving season has begun," said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
"Since there's no major lift in the US shale output, some investors are bullish despite the OPEC+ spat," he said.
US crude and gasoline stocks fell and gasoline demand reached its highest since 2019, the US Energy Information Administration said yesterday, signalling increasing strength in the economy.
Crude inventories fell by 6.9 million barrels in the week to July 2 to 445.5 million barrels, the lowest since February 2020, and more than the expected 4 million-barrel drop estimated in a Reuters poll.
Gasoline stocks fell by 6.1 million barrels, exceeding expectations for a 2.2 million-barrel drop.
Even with oil prices rising toward $75 a barrel, US shale firms are keeping their pledges to keep production flat, a departure from previous boom cycles.
US production peaked near 13 million barrels per day (bpd) in late 2019, and then fell amid COVID-19. Output rebounded to about 11 million bpd in mid-2020, but has stagnated since.
However, gains in oil prices were capped by worries that members of the OPEC+ group could be tempted to abandon output limits that they have followed during the pandemic due to the breakdown in discussions between major oil producers Saudi Arabia and the United Arab Emirates.
The two Gulf OPEC allies are at odds over a proposed deal that would have brought more oil to the market.
Russia was trying to mediate to help strike a deal to raise output, OPEC+ sources said earlier this week.
The US had high level conversations with officials in Saudi Arabia and the UAE, the White House said on Tuesday.
The global spread of the Delta coronavirus variant and worries it could stall a worldwide economic recovery also weighed on oil prices.
"A draw in the US crude inventories was a positive factor, but it could be a temporary phenomena given a resurgence in the Covid-19 pandemic in the US and elsewhere," said Chiyoki Chen, chief analyst at Sunward Trading.
Fresh Covid-19 lockdowns could slow a recovery in air travel and demand for jet fuels, he added.
In Japan, the Olympics will take place without spectators in host city Tokyo, as a resurgent Covid-19 forced the government to declare a state of emergency in the capital that will run throughout the Games.