Oil prices rise on massive U.S. inventory draw, Idalia hit in focus

Investing.com-- Oil prices rose in Asian trade on Wednesday, extending gains from the prior session on signs of a massive draw in U.S. crude stockpiles, while focus also remained on any potential supply disruptions stemming from Hurricane Idalia. 

A drop in the dollar helped oil prices rise sharply on Tuesday, as data showed some cooling in U.S. consumer confidence and the labor market, which could necessitate a less hawkish Federal Reserve.

But bigger gains in prices were held back by uncertainty over rising global supplies and potentially worsening demand.

Markets were also on guard before more economic cues from the U.S. and China due later in the week, as the world’s largest oil consumers face a potential slowdown in economic growth this year. 

Brent oil futures rose 0.4% to $85.22 a barrel, while West Texas Intermediate crude futures rose 0.5% to $81.53 a barrel by 22:12 ET (02:12 GMT). 

Both contracts rose over 1% on Tuesday, amid some bets that Hurricane Idalia will disrupt production along the Gulf of Mexico. Chevron (NYSE:CVX) said it had evacuated staff from three platforms, while Kinder Morgan (NYSE:KMI) said it planned to shut a petroleum pipeline. 

But so far, the storm is expected to stick to the eastern Gulf, avoiding most major oil producing facilities. 

U.S. crude stockpiles fall more than expected, but fuel stocks increase 

Data  from the American Petroleum Institute (API) showed on late-Tuesday that oil stocks likely fell by over 11 million barrels (mb) in the week to August 25, as refiners ramped up output ahead of the Labor Day holiday that usually marks peak summer demand. 

Analysts were expecting a draw of 2.9 mb, after a draw of 2.4 mb in the prior week. But the API data also indicated that gasoline and distillate inventories continued to build, heightening concerns over sluggish fuel demand. 

Fuel demand is expected to taper off after the labor day holiday, and has so far remained languid through the summer season.  

The API data usually heralds a similar trend from official inventory data from the Energy Information Administration, which is due later on Wednesday.

Beyond U.S. stockpiles, markets were also watching for any potential supply increases in Russia and Iraq. Russia said it will taper its ongoing production cuts in September, while Turkey's energy minister signaled that supplies from a northern Iraq pipeline were close to resuming.

U.S., Chinese economic cues on tap

Focus is now on a string of key economic readings from the world’s largest oil consumers, due later in the week. A revised reading on second-quarter U.S. gross domestic product data is due later on Wednesday, as are more readings on the labor market.

China is set to release official purchasing managers’ index (PMI) figures on Thursday, while U.S. personal consumption expenditures- the Federal Reserve’s preferred inflation gauge, are also on tap. August nonfarm payrolls data is due on Friday.