U.S. crude inventories dropped for the first time in 15 weeks, in a further hint that the worst of the supply glut is over.
Stocks fell 745,000 barrels in the week to May 8 according to the Energy Information Administration (EIA) in their closely-watched weekly report. Traders had been expecting a 4.1 million barrel rise for the week.
U.S. stockpiles have risen by 100 million barrels since mid-January, leading to a collapse in W.T.I. oil prices from over $60.00 to lows under $10.00. Oil demand had dropped 30% during the Coronavirus lockdowns and there was also a brief price war between Russia and Saudi Arabia.
Despite the welcome drop in inventories, the Cushing oil hub is still at 80% capacity as producers run out of places to store oil. This dynamic led to the price of oil turning negative days before the May futures contract expiry as tankers were stranded in the Gulf with no storage booked.
In the months we may have seen the worst of the oil glut as OPEC agreed to a further production and fuel demand had shown a rise in the EIA report, although it is still over 20% lower than a year ago. Another draw on supply will come through production cuts, especially in the U.S. shale patch, where rig counts have fallen below 400- the lowest level since 2016.