Oil extends gains after unexpected drop in US stocks

Melbourne/Singapore — Oil prices rose on Wednesday, extending strong gains in the previous session, after industry data showed US crude stocks unexpectedly fell last week just as near-term travel demand picked up with Covid-19 pandemic curbs easing.

Brent crude futures climbed 32c, or 0.4%, to $85.10 a barrel by 4.16am GMT, after rising 1.6% on Tuesday.

US West Texas Intermediate (WTI) crude futures rose 9c, or 0.1%, to $84.24 a barrel, adding to Tuesday’s 2.7% gain.

Both benchmarks closed at their highest since October 26 on Tuesday, supported by tightening global oil inventories during the past several months, and the latest data from the American Petroleum Institute (API) reinforcing the view that supply remains constrained.

According to market sources, API data showed US crude stocks declined by 2.5-million barrels for the week to November 5, defying analysts’ estimates for a 2.1-million build in crude stocks in a Reuters poll.

“Supplies are tight with Opec sticking to its guns,” Avtar Sandu, senior commodities manager at Phillip Futures in Singapore said, referring to the recent agreement between oil cartel Opec and their allies to maintain an output growth of 400,000 barrels a day in December.

Growing air travel is also supporting oil demand, he said.

“I still see a bull charging on; it might be taking a break now, but [if there is] any small spark, it might just continue its march,” Sandu said.

The market will be awaiting weekly inventory data from the US Energy Information Administration (EIA) on Wednesday to see whether it confirms the drawdown in crude stocks.

Further underpinning the view the market remains tight, trading giant Vitol Group CEO Russell Hardy said on Tuesday that oil demand had returned to pre-pandemic levels and that the first quarter of 2022 could see demand exceed 2019 levels.

“The possibility of a spike to $100 a barrel is clearly there,” Hardy told the Reuters Commodities Summit.

Market gains on Tuesday were mainly driven by a short-term outlook from the EIA, which projected gasoline prices would fall over the next few months.

That was a key factor US President Joe Biden had been watching to determine whether to release oil from the Strategic Petroleum Reserve amid concern over recent soaring petrol prices.

“The EIA report ... does curb concerns that the US will release oil from its Strategic Petroleum Reserve (SPR)," Commonwealth Bank analyst Vivek Dhar said in a note.

Reuters