Oil price spikes to 15-month high on higher than expected US inventory drawdown iStock

Oil benchmarks spiked to a 15-month high on Wednesday (19 October) following a higher than expected decline in US crude inventories, with both Brent and West Texas intermediate (WTI) futures holding levels well clear of the $50 per barrel mark.

In a scheduled data release, the US Energy Information Administration said commercial crude inventories fell by 5.2m barrels stateside to a total of 468.7m barrels in the week through 14 October; more than three times over a market estimate of 1.6m barrels compiled by Reuters.

At 4:54pm BST, the WTI front month futures contract was up 2.78% or $1.40 to $51.69 per barrel, having hit an intraday peak of $51.93; its highest since 16 July 2015. Concurrently, Brent was 2.26% or $1.17 higher at $52.85 per barrel, having hit an intraday peak of $53.14.

Overnight Saudi Arabia also reported a lowering of production. According to the latest submission by Riyadh to the Joint Organizations Data Initiative (JODI), the country's crude oil exports in August fell to 7.305m barrels per day (bpd) from 7.622m bpd in July, as the kingdom pumped less oil.

On the latter point, Saudi oil production from August came in at 10.63m bpd, down from a record high of 10.673m bpd noted in July. Opec agreed to limit its production to a range of 32.5m to 33m bpd on 28 September, but will only spell out the nature of the cuts on 30 November.

Analysts at Vienna-based JBC Energy said lower seasonal requirements underpin their view that Saudi crude production is set to decline anyway in the short-term, even when assuming no Opec action. "Beyond that, the potential for further structural declines in domestic demand for power generation as well as no additional refining capacity coming online next year speak against further increases to Saudi crude output."

As prospects of an Opec oil production cut agreement remain high, many reckon an oil price above $50 supported by such a cut was likely to improve the fortunes of several non-Opec producers.

Oil crisis: Saudi Arabia
Oil pump in Saudi Arabia Reuters

In a note to clients, analysts at Commerzbank noted: "A low price level makes much of non-Opec production unprofitable. This makes it all the harder to understand why Opec is talking prices up with its current debate about production cuts, and is thus helping precisely those oil producers it would ideally like to force out of the market."

Away from the oil market, precious metals remained in positive territory for third successive session. At 3:16pm BST, Comex gold futures contract for December delivery was up 0.65% or $8.20 to $1,271.10 an ounce, higher intraday, but well shy of $1,300-plus levels seen last month.

Liz Grant, senior account executive at Sucden Financial said: "Gold, which had recovered some ground overnight, made further gains on Wednesday up to $1,272 as the market begins to correct from 'oversold' and traders begin to consider inflation edging up. A move through $1,275 to $1,280 could trigger significant short-covering.

"Looking ahead, although gold is likely to face strong headwinds in the fourth quarter, we expect the uptrend starting at the end of last year to remain intact in the fourth quarter and the whole of 2017 for a confluence of factors."

Elsewhere, Comex silver for December delivery was up 0.21% or ¢4 to $17.68 an ounce, while spot platinum was up a mere 0.06% or ¢60 at $945.35 an ounce.