Oil prices nudged higher on Thursday, recovering slightly after the prior session’s drop, as a surprisingly large drawdown in U.S. crude inventories helped offset growing speculation that diplomatic efforts to end the Russia-Ukraine conflict could eventually release more supply into an already saturated market.
By 07:14 GMT, Brent crude was up 20 cents, or 0.31%, at $63.72 a barrel, while U.S. West Texas Intermediate rose 22 cents, or 0.37%, to $59.66.
Both contracts clawed back some ground after sliding 2.1% on Wednesday, a move triggered by a Reuters report claiming the United States had encouraged Ukraine to consider a U.S.-drafted peace proposal requiring it to give up territory and certain weapons, according to two sources cited in the story.
The prospect of a settlement raised expectations that Western sanctions on Russian oil could be loosened, potentially flooding the market with additional barrels at a time when crude is already being stored offshore and major suppliers have increased output.
In a research note, ING analysts said Ukraine was unlikely to accept the proposal because it could be seen as favoring Moscow, but added that “signs that the U.S. is still trying to work on a deal eases some concerns over further sanctions against Russia and also how strongly current curbs will be enforced.”
Providing a counterweight to supply concerns was the Energy Information Administration’s latest report, which showed a far larger-than-expected draw in U.S. crude stocks. The decline reflected stronger refinery activity bolstered by healthy margins, as well as firm overseas demand for American crude.
Crude inventories dropped by 3.4 million barrels to 424.2 million for the week ending November 14 — well above the 603,000-barrel draw forecast in a Reuters poll.
Still, analysts pointed out that both gasoline and distillate inventories rose for the first time in more than a month, suggesting fuel demand may be starting to cool.
Traders are also watching the approach of a U.S.-imposed November 21 deadline for companies to end business with Rosneft and Lukoil, Russia’s largest oil producers and exporters, a development that could influence supply conditions in the coming weeks.
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