Oil Up as Falling Stockpiles Add Impetus to Rally

(Bloomberg) -- Oil extended gains after closing at the highest level in more than a year as declines in American and Chinese crude stockpiles added fresh impetus to a rally driven by tightening global supplies.

Futures in New York edged above $55 a barrel after jumping almost 5% 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 ahead of a meeting of its Joint Ministerial Monitoring Committee on Wednesday. There were also more signs of strength in the physical market, with Royal Dutch Shell Plc 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 0.6% to $55.06 a barrel on the New York Mercantile Exchange at 7:25 a.m. in London It closed at $54.76 on Tuesday, the highest since Jan. 23, 2020 Brent for April settlement advanced 0.7% to $57.84 on the ICE Futures Europe exchange after jumping 2% in the previous session

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 U.S. 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 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.

Other oil-market news

A fragile recovery in Asian aviation is being snuffed out by a resurgence of Covid-19 in the region, pushing back forecasts for when air travel will get back to pre-virus levels and weighing on jet fuel margins. The U.S. has filed court documents in a bid to seize oil on board a vessel because it says the crude came from Iran and falls under its terrorism laws. Exxon Mobil Corp. pledged to safeguard the S&P 500 Index’s third-largest dividend after posting its first annual loss in at least 40 years, a show of defiance by an oil driller besieged by activist investors and climate-change campaigners.

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