Oil jumps to one-year high with depleting supplies aiding rally

Oil extended gains in Asia after closing at the highest level in more than a year as declines in U.S. and Chinese crude stockpiles gave fresh impetus to a rally driven by tightening global supplies.

Futures in New York traded near $55 a barrel after jumping almost 5 per cent over the previous two sessions in tandem with a broader rally in financial markets. The American Petroleum Institute reported crude inventories fell by 4.3 million barrels last week, people familiar with the data said. Chinese stockpiles have dropped to the lowest in almost a year, according to data provider Kayrros.

OPEC+ said it expects that it will drain an oil surplus by the middle of the year. There were also more signs of strength in the physical market, with Royal Dutch Shell bidding for more cargoes of benchmark-grade North Sea crude on an S&P Global Platts pricing window. That comes a day after the oil major staged the heaviest buying by a single company since at least 2008.

Saudi Arabia’s pledge last month to unilaterally cut output in February and March has buttressed global oil markets, allowing prices to keep rising even as a resurgent coronavirus hurts the short-term demand outlook. It’s also helped reshape the futures curve, pushing Brent into a bullish market structure that suggests investors are comfortable with the supply and demand dynamics.

“The rally overnight was part of the generally bullish momentum that has swept financial markets this week,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific. “Much of the rally is predicated on the passage of the Biden stimulus package relatively unchanged,” so there’s a downside risk if its passage gets blocked in the Senate or if it becomes much smaller, he said.

Prices

– West Texas Intermediate for March delivery rose 0.3 per cent to $54.94 a barrel on the New York Mercantile Exchange at 11.40am in Singapore
It closed at $54.76 Tuesday, the highest since January 23, 2020.

– Brent for April settlement advanced 0.4 per cent to $57.66 on the ICE Futures Europe exchange after closing up 2 per cent in the previous session.

– Crude futures fell 0.2 per cent to 346.2 yuan a barrel on the Shanghai International Energy Exchange after jumping 3.1 per cent on Tuesday.

Brent’s prompt timespread is 27 cents a barrel in backwardation, where near-dated prices are more expensive than later-dated ones. It was in a 7-cent contango at the beginning of the year.

The API reported distillates and gasoline stockpiles fell by 1.62 million barrels and 240,000 barrels, respectively, last week. The official Energy Information Administration crude inventories data is due Wednesday in the US. Analysts surveyed by Bloomberg are forecasting a 2.3-million barrel decline.

Oil inventories in developed nations will subside back below their five-year average in June, according to a report compiled by OPEC+. The Joint Ministerial Monitoring Committee, which oversees the alliance’s strategy, will convene online on Wednesday to assess the outlook. The JMMC is unlikely to recommend new policies, which will instead be tackled at the next full OPEC+ meeting in early March, according to delegates who asked not to be identified.