Oil prices surge on falling U.S. crude inventory

By Andres Guerra Luz on 4/14/2021

(Bloomberg) --Oil jumped the most since late March with declining U.S. crude stockpiles and rising fuel demand providing the spark needed to break out of a nearly monthlong price range.

Futures climbed as much as 5.3% in New York on Wednesday, pushing prices out of a recent $5 trading range to the highest intraday level since March 18. A U.S. government report showed domestic crude inventories fell by 5.89 million barrels last week, the biggest decline in two months, bringing nationwide supplies to the lowest since late February. A gauge for gasoline demand ticked higher for a seventh straight week.

“The crude draw and the very slight increase in gasoline inventories speaks to the whole setup of recovering demand and balancing inventories,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “It’s a stark difference compared to this time last year. We’re seeing the real contrast between what it looks like in a poor demand scenario a year ago versus a recovery scenario today.”

The stronger outlook for U.S. demand, along with improvements in China, drove the International Energy Agency to lift its forecast for oil consumption this year. With the IEA report, the world’s three major oil agencies have now all increased their demand estimates for 2021. The U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries also pointed to an improving economic outlook and the rapid roll-out of vaccines, particularly in the U.S.

“A combination of unprecedented fiscal stimulus and vaccination campaigns will provide a solid base for the oil demand recovery in the latter half of this year,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “The stage is set for some hefty stock draws.”

Prices:

  •          West Texas Intermediate for May rose $3.05 to $63.23 a barrel at 12:53 p.m. in New York
  •          Brent for June settlement gained $3 to $66.67 a barrel

Signs continue to emerge of a robust demand recovery taking shape in the U.S. The four-week rolling average of gasoline supplied has been on a multi-week climb back toward 9 million barrels a day, while refineries have been processing crude at the highest level since March 2020, the early days of the pandemic. That comes as New York City toll traffic is set for its busiest April in at least seven years, while some see nationwide gasoline consumption having a record summer.

The EIA report also provided some points of optimism for jet fuel, demand for which was among the hardest when the pandemic ground flights and stymied air travel. A measure of jet fuel demand topped 1 million barrels a day last week for the fifth straight week, as Transportation Security Administration daily passenger data shows foot traffic above the 1 million every day since early March.

It’s not just the U.S. that’s seeing green shoots of a return to normal consumption. Data from the U.K. showed road use was at 91% of pre-pandemic levels on Monday, the strongest daily reading since November. Meanwhile, in lifting its demand outlook, the IEA also noted the existing strength in other key demand hubs. Japan, for example, saw its oil demand top pre-pandemic levels for the second month in a row in February.

Other oil-market news:

  •          Saudi Arabia is celebrating one of the biggest foreign-investment windfalls in its history after netting more than $12 billion by selling off a stake in the oil pipelines that traverse the desert kingdom.
  •          U.S. shale producers risk another oil-price war with OPEC and its allies if they resume the breakneck production growth of the last decade, according to Pioneer Natural Resources Co.
  •          Egypt seized the giant container vessel that blocked the Suez Canal last month as part of an effort to get more than $900 million in compensation.
  •          China is clamping down on independent oil refiners in an effort to curb overcapacity and stamp out illegal practices as the central government tries to control one of the country’s fastest-growing industries.

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