Oil at weekly high as US inventories decline

Oil prices moved sharply higher after a report showed an unexpected drop in U.S. inventories, while Europe continues to face energy uncertainty as Russia turns off the natural gas tap.

In particular, the September Brent contract strengthened by 2.2% to $106.7 a barrel, up $2.28.

Accordingly, US WTI September rose 2.4% or $2.28 to $97.26 a barrel which was also the highest close of the week.

U.S. crude oil inventories fell sharply last week by 4.5 million barrels, more than four times the market estimate for a 1 million-barrel drop.

The decline was largely due to an increase in US crude exports, which rose to 4.5 million barrels per day last week.

The spread between European Brent and US WTI futures, or arbitrage, has now widened to more than $9 a barrel, making it more attractive for US companies to sell crude abroad.

“The arb has risen so much, so you may see us break even 5 million barrels in the coming weeks,” notes Mizuho’s Robert Yawger.

At the same time, in Europe the flow of natural gas through Germany’s Nord Stream fell today to 20% of the pipeline’s maximum capacity, as announced, intensifying concerns about the risk of shortages in the coming winter.

Gazprom had announced on Monday that it would double daily deliveries via Nord Stream, citing a “maintenance operation on a turbine”.

A spokesman for the Kremlin said that Western sanctions were responsible for the reduction, which “if they didn’t exist, everything would have been done with the usual deadlines”, but the Europeans reject the technical reasons cited by Moscow and accuse it of using natural gas as an economic and political weapon.