Higher Crude Oil Supported by Potential Strike in Norway, Crisis in Venzuela

Crude oil futures traded higher on Wednesday on increased demand for commodities after prices were beaten down following the U.K.’s decision to leave the European Union late last week. Money poured back into the higher risk commodity markets as the initial shock of Brexit eased. Also underpinning crude prices were a potential strike in Norway and crisis in Venezuela. Both events threatened to cut supply.

U.S. West Texas Intermediate (WTI) futures were last reported at $48.12, up 0.27 or +0.54%. This was slightly off the early session high of $48.39. Internationally favored Brent Crude futures were trading at $48.73 per barrel, up 15 cents from Tuesday’s settlement.

Both Brent and WTI futures contracts finished higher on Tuesday after global financial markets recovered following the shock of last week’s UK referendum in which voters elected to exit the EU, triggering turmoil across all sectors of the financial markets as well as all regions.

A general “risk-on” tone was responsible for the initial rally in crude yesterday, but today’s early rally was supported by the supply side of the fundamentals, as a looming strike by Norwegian oil and gas field workers threatened to cut output from the biggest North Sea producer.

Also underpinning prices were reports that oil producers and refiners in crisis-struck Venezuela were struggling to keep output up due to power outages and equipment shortages also supported prices, traders said.

Support was also provided by better-than-expected news from the American Petroleum Institute (API) late Tuesday. The API reported that crude inventories could have fallen nearly 4 million barrels for the week ended June 24, about two-thirds more than the 2.4 million barrel estimate.

The latest API weekly inventory data recorded a draw of 3.9 million barrels compared with the expected draw of around 2.4 million barrels and followed the draw of 5.2 million barrels recorded last week. API inventories have now declined for six consecutive weeks, which indicates a significant underlying market tightening, which will offer some underlying protection to prices.

Cushing stocks continued to decline by 1.21 million barrels as indicated by Monday’s Genscape estimate that inventories at the Cushing facility declined by around 1.3 million barrels.

There was also a further decline of 0.42 million barrels in gasoline stocks following last week’s larger than expected draw, while distillate inventories fell 0.83 million barrels for the week.

On Wednesday, crude oil investors will get the opportunity to react to the latest inventory data from the U.S. Energy Information Administration.