WTI falls to $79.30 amid a historic drop in US crude stocks

• WTI faces some selling pressure and edges lower to $79.35.
• EIA reported that US crude inventories recorded the largest drop since 1982.
• The downgrade of the government’s credit rating by Fitch triggered the correction in WTI prices 
• ADP private employment data was stronger than expected.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around the $79.35 mark so far on Thursday. WTI prices face some selling pressure and correct lower from $82.12, the highest since April 14, as US crude inventories recorded the largest drop since 1982.

The US Energy Information Administration (EIA) reported that crude oil inventories fell by 17 million barrels, the steepest decline since records began in 1982. Increased refinery runs and robust crude exports triggered the drop. Meanwhile, the American Petroleum Institute indicated on Tuesday that US crude oil stockpiles decreased by around 15.4 million barrels in the week ending July 28 after rising by 1,319 million barrels the previous week. The analysts forecast a decline of 1.37 million barrels.

The downgrade of the government’s credit rating by a prominent ratings agency triggered the correction in WTI prices. That said, Fitch downgraded the US Long-Term Foreign-Currency Issuer Default Rating from AAA to AA+. The leading rating company cited an expected fiscal deterioration over the next three years and a high general government debt burden as the primary reasons for this drastic action.

US Treasury Secretary Janet Yellen said late Wednesday that Treasury securities remain the world’s most secure and liquid asset and that the US economy is fundamentally robust, per Reuters. Additionally, White House (WH) Economic Adviser Jared Bernstein expressed confidence in the US government and Congress to avoid default, and the US Treasury debt remains the safest in the world, per Reuters. This headline intensifies concern surrounding the US debt ceiling crisis and limits the upside in WTI prices.

Furthermore, ADP private employment data was stronger than expected. The number of employed people in the US private sector rose by 324K, above estimates of 189K and lower than the revised reading of 455,000 in June. This reading was above the 12-month average, and investors speculate on a more aggressive Federal Reserve (Fed) stance, undermining the WTI price. It’s worth noting that higher interest rates raise borrowing costs, which can slow the economy and diminish oil demand. 

Moving on, the Organisation of Petroleum Exporting Countries (OPEC) and its allies, led by Russia, will hold a meeting on Friday. The developments from this event might give a clear direction to WTI prices. Oil traders will also take cues from the US Nonfarm Payrolls data. The US economy is expected to have created 180,000 jobs.