Oil Moves Closer to $60 With Inventories in Retreat

(Bloomberg) -- Oil prices continued their surge in the world’s major trading centers, fortified by shrinking stockpiles and continued investor optimism the market will strengthen in the coming months.

Brent crude, which was about $35 a barrel as recently as three months ago, surged to $59.04 on Thursday. Multiple trading gauges suggest a market that’s getting tighter, a move with global ramifications including boosting oil-rich economies and lifting gasoline prices at the pump.

Crude inventories at a key storage hub in the U.S. are now below their five-year average, and nationwide inventories continue to slump, an early indication that Saudi Arabia and allied producers are succeeding in their efforts to eliminate a glut. They’re also dropping in China, where oil major Royal Dutch Shell Plc says its sales in January were up significantly on a year earlier, meaning that the world’s two most-important demand centers are experiencing a notable tightening.

While crude stockpiles are on the decline, there are still doubts about the recovery in oil demand as Covid-19 continues to keep a lid on global consumption. Saudi Arabia’s commitment to cutting output, however, has helped keep the market in balance as investors plow money into oil on the expectation of a full recovery later in the year.

“At the moment we are seeing pretty good oil prices,” Ben van Beurden, chief executive officer of Shell said in a Bloomberg TV interview. “Demand is not back where it was a year ago, but then again we see a lot of discipline also from OPEC+ and therefore the market is being held in balance quite well.”

Prices

Brent for April settlement climbed 0.5% to $58.73 as of 10:04 a.m. in London West Texas Intermediate for March delivery rose 0.7% to $56.08 a barrel

Money is flooding back into the market. Total holdings of WTI crude futures are now at their highest level since July 2018, surpassing levels seen during the frenzied trading of April last year.

At the same time the crude futures curve continues to indicate strength. The so-called Dec.-Red-Dec. spread, a favored trade of the world’s hedge funds, has topped $3 a barrel in recent days to reach its strongest level in a year.

Other oil-market news:

Royal Dutch Shell Plc deepened the disappointment of Big Oil’s fourth quarter, reporting net income that fell short of expectations and weak cash flow. Saudi Arabia kept oil pricing for its main market of Asia unchanged in March, after a key OPEC+ committee expressed confidence that the oil market is re-balancing.

--With assistance from Elizabeth Low, Anna Edwards and Matthew Miller.

© 2021 Bloomberg L.P.