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By Michael Poulson, A/S Global Risk Management

Oil prices rallied more than 1% overnight after a U.S. report showed a larger weekly draw in crude and gasoline than expected. The market was further supported by news of a surprise drop in distillate inventories.

U.S. crude stocks fell 4.7 million barrels during the week ended July 14 exceeding estimates for a 3.2 million draw in a Reuters poll. In addition, EIA said distillate stocks decreased 2.1 million barrels and gasoline stocks declined 4.4 million barrels. Analysts polled by Reuters had forecast a 1.2 million barrel build in distillates and a 0.7 million barrel draw in gasoline. The drawdown occurred even as EIA said U.S. production climbed to 9.43 million barrels per day (bpd), its highest since July 2015. This was good news for the oil industry as inventories declined across the board for crude and products by over 10 million barrels suggesting that a positive demand response as a result of the lower oil prices.

The draw in inventories comes as a boost as OPEC struggles to support prices with their output cuts. Saudi Arabia continues to be committed to tightening the market and hopes to accommodate the rise in production from Libya and Nigeria. While Russia says it is ready to continue working with OPEC to help rebalance oil markets, a Russian energy source said on Wednesday, adding that Moscow welcomed a flexible approach by OPEC's leader Saudi Arabia to accommodate rising output from Nigeria and Libya.

Hopes that the market is further rebalancing itself has boosted the appeal of crude this week, prompting ICE Brent to trade to an overnight high of $49.81. On the economic front, we have the ECB rate decision and US unemployment claims due.

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A/S Global Risk Management is a provider of customised hedging solutions for the management of price risk on fuel expenses. The company has offices in Denmark and Singapore. For further details about its risk management products and services, please call +45 88 38 00 00 or email hedging@global-riskmanagement.com.