Oil-related exchange traded funds strengthened Wednesday as inventory levels dipped with U.S. exports hitting an all-time high in response to the widening gap between domestic and international crude benchmarks.
On Wednesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, were both up 2.6%. Meanwhile, WTI crude oil futures were up 2.8% to $97.7 per barrel, and Brent crude futures gained 2.3% to $106.8 per barrel.
According to the Energy Information Administration, U.S. crude oil inventories experienced their largest draw since the end of May, declining by 4.52 million barrels last week, Bloomberg reports.
Meanwhile, U.S. exports of crude oil touched a record high as foreign buyers picked up the relatively cheaper WTI crude compared to the international benchmark Brent crude with the European Union seeking alternatives to cut Russian supplies.
“There is demand for crude more globally,” given unreliability with Russian supplies, Brian Kessens, a portfolio manager at Tortoise, told Bloomberg. “The spread widening gives US producers an incentive to export.”
The U.S. benchmark WTI crude has seen prices widen relative to the international Brent crude, trading more than $9 below the international benchmark at one point on Wednesday.
“The suppressed prices in the United States are being aided by the country’s strategic reserves,” Harry Altham, EMEA & Asia Energy Analyst for StoneX Group, told Bloomberg. “This spread widening also isn’t entirely based off of Brent’s September contract expiry as Brent’s 2-3 month calendar spread is also at its greatest premium to the WTI equivalent since May 2020.”
The Biden administration stated on Tuesday that it will release an additional 20 million barrels of oil from the United States Strategic Petroleum Reserve to help tame rising energy prices this year. The U.S. has already taken out 125 million barrels from the Strategic Petroleum Reserves.
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