OPEN APP
Home >News >World >Oil holds gains on surprise US stock draw and vaccine optimism
FILE PHOTO: The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. Picture taken November 24, 2019.  REUTERS/Angus Mordant/File Photo (REUTERS)
FILE PHOTO: The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. Picture taken November 24, 2019. REUTERS/Angus Mordant/File Photo (REUTERS)

Oil holds gains on surprise US stock draw and vaccine optimism

Oil held onto eight-month highs after a surprise decline in U.S. crude supplies added to optimism that breakthroughs on a Covid-19 vaccine and an impending rollout will kickstart a strong rebound in demand next year.

Oil held onto eight-month highs after a surprise decline in U.S. crude supplies added to optimism that breakthroughs on a Covid-19 vaccine and an impending rollout will kickstart a strong rebound in demand next year.

Futures in New York rose as much as 1.8% on Wednesday. An Energy Information Administration report showed U.S. crude stockpiles fell 754,000 barrels last week, along with a 10th straight weekly draw in distillate inventories. Still, the EIA report also showed gasoline stockpiles rose over 2 million barrels last week and crude production ticked higher.

Prices advanced earlier after Chinese and Indian refiners issued a flurry of tenders seeking crude oil for loading in January, highlighting the strong demand coming from parts of Asia. Meanwhile, positive developments on a vaccine have spurred a swift reshaping of oil’s futures curve, with several key markers moving into a bullish backwardation structure in recent days.

“This is in tune with the idea of economic recovery and we’re seeing continuous data points on that," Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. The prospect for a vaccine “encourages the animal spirits to think about better consumption, better economic activity in the future, but in the near term we’re going to see a lot of balancing of localized inventories based on outages."

While optimism over vaccines has helped U.S. crude benchmark rise more than 25% so far this month, the swift runup poses yet another headache for OPEC+ ahead of next week’s meeting to evaluate the group’s output strategy. In the latest sign of growing rifts within the cartel, Iraq’s deputy leader said this week that OPEC should take members’ economic and political conditions into account when deciding production quotas rather than adopting a “one-size-fits-all" approach.

Iraq Voices Frustration With OPEC Days Before Crunch Meeting

Still, along with the firming structure of the oil futures curve, prices further out have also been moving higher. WTI prices for 2021 were at their strongest level since March early on Wednesday, while those for 2022 topped $45 to reach their highest since September. The higher forward prices are boosting the incentive for oil producers to lock in their supplies for the coming years. Prices have also been supported by renewed geopolitical tensions, with recent attacks on a fuel depot in the Saudi city of Jeddah and on an oil tanker in the Red Sea.

“There’s been so much angst with respect to demand and the coronavirus," said Tony Headrick, energy commodity broker at CHS Hedging. “Now that we have a clear view of what the vaccines can do, the outlook is a lot brighter for 2021. The market seems to be getting a head start on that."

Aside from the headline crude draw, a decline in inventories at the national storage hub in Cushing, Oklahoma, provided another reason for relief. Stockpiles at Cushing have recently been approaching levels last seen in May following WTI’s journey below zero.

“There has been some talk about tank tops, but it’s not as dire as it was in the spring," Tortoise’s Kiley said. “It’s more about slow, but improving recovery in economic activity and therefore demand for refined products."

Meanwhile, the streak of draws in distillate inventories have led a recovery in the so-called diesel crack. The refining margin has been trading above $12 a barrel recently after plunging below $10 a barrel earlier this year. Still, the crack remains at its lowest seasonally since 2009.

This story has been published from a wire agency feed without modifications to the text.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
×
Edit Profile
My Reads Redeem a Gift Card Logout