Oil rose again to extend the longest run of gains in two years with an industry report showing falling U.S. crude stockpiles the latest sign of tightening globally supplies.
While prices continue to surge, some of the biggest moves in the past day have come at the front of the futures curve. Brent’s nearest timespread has surged -- a key sign of market tightness -- while key swaps tied to the physical North Sea market have also increased amid frenzied trading of derivatives late Tuesday.
Crude’s rise on Wednesday was supported by the American Petroleum Institute reporting inventories fell by 3.5 million barrels last week, according to people familiar with the numbers. If confirmed by official data, it would be an eighth decline in nine weeks.
The structure of oil’s futures curve is offering the biggest yield in about a year, and investors are piling in. Supply cuts by Saudi Arabia and draining stockpiles in regions including China are helping boost confidence that the market has shaken off the worst effects of the coronavirus pandemic. While there are still concerns about near-term demand with many countries still in lockdown, vaccines have helped improve the outlook.
“Oil prices continue to grind higher on the combination of tight supply, a weak dollar and overall positive risk sentiment,” said Jens Pedersen, a senior analyst at Danske Bank.
- West Texas Intermediate for March delivery added 0.6% to $58.68 a barrel as of 10:41 a.m. London time
- Prices are up for an eighth day, the longest run since February 2019
- Brent for April settlement rose 0.7% to $61.51
Still, some like trading firm Vitol SA’s Asia head Mike Muller think the rally may have gone too far. A technical indicator is signaling oil is overbought and due for a correction. There are also concerns that elevated prices will prompt producers to pump more crude.
U.S. explorers are set to boost drilling and production from the second half of this year, with crude prices set to stay above $50 a barrel, the Energy Information Administration said in its Short-Term Energy Outlook on Tuesday. The agency also said the country’s petroleum consumption is unlikely to reach pre-pandemic levels this year or next.