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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher on Friday as buyers continued to react to a government report released on Thursday that showed another sizable drop in U.S. inventories. Meanwhile, signs of strong Asian demand from both China and India added support.

On Friday, September WTI crude oil futures settled at $73.81, up $1.59 or +2.20% and September Brent crude oil futures finished at $75.55, up $1.43 or +1.89%.

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Despite the U.S. supply driven rally, prices were likely capped by concerns that some major Middle-East producers would abandon output restrictions following the collapse of production talks between the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+.

Energy Information Administration Weekly Inventories Report

U.S. crude and gasoline stocks fell and gasoline demand reached its highest since 2019, the U.S. Energy Information Administration said on Thursday, signaling 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.

In addition, gasoline demand surged to a one-week record, but the four-week average of gasoline supplied was at 9.5 million bpd, the highest since October 2019. That helped lower gasoline stocks by 6.1 million barrels, exceeding expectations for a 2.2 million-barrel drop.

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US Drillers Add Oil and Gas Rigs for Second Week in a Row – Baker Hughes

U.S. energy firms added oil and natural gas rigs for a second week in a row as oil prices recently rose to their highest level since October 2018, prompting some drillers to return to the well pad.

The oil and gas rig count, an early indicator of future output, rose 4 to 479 in the week to July 9, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.

That put the total rig count 221 rigs, or 85.7%, higher than this time last year. It was also up 49% since falling to a record low of 244 in August 2020, according to Baker Hughes data going back to 1940.

U.S. oil rigs rose 2 to 378 this week, their highest since April 2020, and gas rigs also rose 2 to 101.

Short-Term Outlook

Although it wasn’t mentioned much in the oil market news last week, according to reports, the U.S. surpassed 20,000 new COVID-19 cases for a fourth day in a row on Friday as the highly contagious Delta variant persists in its track in being the most common form of the coronavirus in the country. The last time the country had back-to-back days of cases topping 20,000 was in May, according to the data.

If this continues to become an issue than traders could lower their expectations for the economic recovery as well as demand forecasts. This could further cap gains and could even lead to a short-term correction in crude oil.

For a look at all of today’s economic events, check out our economic calendar.
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