Oil Up with Global Market Tightening

(Bloomberg) -- Oil extended gains after closing at the highest level in more than a year as a slump in U.S. crude production following the cold blast and shrinking European stockpiles tightened the market further.

Futures in New York rose toward $64 a barrel after adding 2.5% on Wednesday. U.S. crude output slid below 10 million barrels a day last week during the big freeze, matching a low reached last summer following outages caused by Hurricane Laura. Stockpiles continue to shrink globally with inventories at a major European storage hub falling to the lowest since September.

The prompt timespread for U.S. crude futures has also flipped back into a bullish backwardation structure and firmed after sliding into contango last week amid the cold snap. Some in the market are even talking about global benchmark Brent hitting $100 a barrel again in the longer term.

Oil is set for a fourth monthly gain after a pledge by Saudi Arabia to deepen output cuts accelerated a rally triggered by Covid-19 vaccine breakthroughs. While there’s been a raft of bullish calls on the outlook recently, the market is facing a possible supply increase in April from OPEC+, which meets next week to discuss its strategy with key members again differing on the way forward.

“Crude feels distinctly frothy at current levels,” said Vandana Hari, founder of Vanda Insights in Singapore. Saudi Arabia and other OPEC+ members could start returning more oil supply to the market in April and that “may finally dampen the relentless rally we’ve seen,” she added.

Prices

West Texas Intermediate for April delivery gained 0.7% to $63.67 a barrel on the New York Mercantile Exchange at 7:50 a.m. London time after closing at the highest since January 2020 on Wednesday. Brent for April settlement added 0.8% to $67.59 on the ICE Futures Europe exchange after rising 2.6% in the previous session.

Shale explorers reported almost 6 million barrels of combined oil-output losses during the freeze last week. Occidental Petroleum Corp. and Pioneer Natural Resources Co., two of the largest producers in the Permian Basin, alone had a combined loss of about 3.8 million barrels, according to Bloomberg News calculations based on fourth-quarter earnings reports and calls.

U.S. crude stockpiles, however, expanded by 1.29 million barrels last week after freezing temperatures shut most Texas refineries, according to data released Wednesday from the Energy Information Administration. Inventories at the key storage hub of Cushing also rose for the first time in seven weeks.

Other oil-market news:

Exxon Mobil Corp. erased almost every drop of oil-sands crude from its books in a sweeping revision of worldwide reserves to depths never before seen in the company’s modern history. A planned overhaul of how the world’s most important benchmark crude price is calculated has caused a surge in trading of swaps used to hedge North Sea oil prices. The world’s oil giants have lost their leadership of U.K. North Sea production, usurped by small drillers and private equity firms that most people have never heard of.

--With assistance from David Stringer.

© 2021 Bloomberg L.P.