Crude oil futures extend gains amid draws in US crude, product stocks

Crude oil futures strengthened during mid-morning Asian trade July 28, extending overnight gains after US data showed draws in crude and oil product stocks in the week ended July 22, while sentiment in financial markets improved after the US Federal Reserve's latest hike in interest rates.

The ICE September Brent futures contract was up $1.33/b (1.25%) from the previous close at $107.95/b at 10:07 am Singapore time (0207 GMT) July 28, while the NYMEX September light sweet crude contract rose $1.43/b (1.47%) to $98.69/b.

US commercial crude stocks fell 4.52 million barrels to 422.09 million barrels in the week ended July 22, US Energy Information Administration data showed July 27, as record exports offset a counter-seasonal decline in refinery crude demand.

Total US crude exports averaged 4.55 million b/d over the week, up 21% from the week prior and an all-time high. Total refined product exports rose 13% on the week, bringing total US oil exports to an all-time high of 10.87 million b/d in the week ended July 22.

US gasoline stocks fell by 3.3 million barrels to 225.1 million barrels over the same period, EIA said, leaving them 4.3% behind the five-year average for this time of the year. Distillate stocks were down 780,000 barrels at 111.72 million barrels.

"Crude oil gained as data showed demand for US crude was rising globally amid a supply crunch," said ANZ Research analysts Brian Martin and Daniel Hynes in a July 28 note. "Tightness in supplies in Europe amid sanctions on Russian oil are driving the strong demand."

The US Federal Reserve hiked its target Fed funds rates by 75 basis points, as widely expected, at the close of its July 26-27 meeting.

The outcome was met with relief in financial markets, with US stock indices rallying sharply as chair of the Federal Reserve Jerome Powell appeared to soften his tone on future rate hikes.

"Markets were able to find relief on Powell's comments on the moderation of interest rate hikes at some point. While that should be expected as well from the pricing in the Federal funds futures, bringing it up at its latest meeting seems to suggest that some consideration is in place and it may come sooner rather than later," said IG market strategist Yeap Jun Rong.

ING analysts, in a July 28 note led by Chief International Economist James Knightley, said they expected further interest rate hikes of 125 basis points by year-end, followed by rate cuts in 2023.

"With recession risks mounting and inflation set to fall sharply in 2023, rate cuts will be the key theme for next year," they said.

The September Dubai swap was pegged at $97.93/b at 10 am Singapore time (0200 GMT) July 28, up $3.17/b (3.35%) from the Asian close July 27.

The August-September Dubai swap intermonth spread was pegged at $3.53/b at 10 am July 28, 23 cents/b wider on the day, and the September-October intermonth spread was pegged at $2.45/b, narrower by 14 cents/b.

The September Brent/Dubai EFS was pegged at $10.06/b, down 74 cents/b.