Oil touches highest level since Oct 2018 on warning about supply crunch

Oil edged lower after closing at the highest level since October 2018 with an industry report pointing to a further draw in US crude stockpiles, adding to signs of a rapidly tightening global market.

Futures in New York traded near $75 a barrel after rising 1.6 per cent on Tuesday. The American Petroleum Institute said crude inventories slid by more than 4 million barrels last week, according to people familiar with the data. That would be an eighth straight weekly draw, the longest run of declines since January 2018, if confirmed by government figures later on Wednesday.

US oil demand has soared to new heights as the nation rebounds from the pandemic, with gasoline and diesel consumption returning to pre-virus levels. A surge in petroleum use for products such as plastic, asphalt, lubricants and other industrial needs is also propelling the recovery.

Oil has rallied more than 50 per cent this year as the vaccine rollout boosts demand in key economies such as the US, with the International Energy Agency warning that the market will tighten significantly if OPEC+ doesn’t resolve a standoff and lift production. Talks broke down earlier this month and it’s looking increasingly likely that the alliance won’t add more supply in August as members lock in supply volumes to customers next month.

The OPEC+ impasse, as well as a Covid-19 comeback in many regions that’s being driven by the fast-spreading delta variant, have added uncertainty to the short-term outlook over the past week. Sydney extended its lockdown on Wednesday as Australia’s most-populous city battles the outbreak.

“Signs of a US economy recovery is clear and global supplies are tightening, but OPEC+ remains a wildcard,” said Will Sungchil Yun, a senior commodities analyst at VI Investment in Seoul. Oil is likely to be volatile until the alliance reaches a compromise on supply, he added.

Prices

West Texas Intermediate for August dipped 0.3 per cent to $75.01 a barrel on the New York Mercantile Exchange at 10.10am in Singapore.

Brent for September settlement slipped 0.2 per cent to $76.32 on the ICE Futures Europe exchange after climbing 1.8 per cent on Tuesday.

The market remains in a bullish structure, however, although it’s eased somewhat. The prompt timespread for Brent was 78 cents a barrel in backwardation — where near-dated prices are more expensive than later-dated ones. That compares with 88 cents a week earlier.

US gasoline stockpiles fell by 1.54 million barrels last week, while distillate inventories rose by 3.7 million barrels, the API said. Nationwide crude supplies are forecast to have dropped by 4 million barrels last week, according to a Bloomberg survey before the Energy Information Administration data.