Oil Buoyant on Stockpile Draw and Saudi Pledge



Oil Buoyant on Stockpile Draw and Saudi Pledge
Oil rose for a third day as a drop in U.S. crude stockpiles and Democrat victories in Senate elections in Georgia added impetus to a rally spurred by Saudi Arabian output cuts.

(Bloomberg) -- Oil rose for a third day as a drop in U.S. crude stockpiles and Democrat victories in Senate elections in Georgia added impetus to a rally spurred by Saudi Arabian output cuts.

Futures in New York traded near $51 a barrel after surging 6% over the previous two sessions. American crude inventories fell by around three times as much as forecast, although gasoline and distillates stockpiles swelled, Energy Information Administration data show. The kingdom raised pricing for Asian and U.S. customers after saying it would unilaterally lower production.

The Democrat wins in Georgia buoyed markets broadly as they gave the party control of the chamber, potentially paving the way for more U.S. stimulus spending. Scenes of chaos in Washington as protesters stormed the U.S. Capitol had earlier contributed to financial assets paring gains on Wednesday.

The Saudi move to cut production by 1 million barrels a day in February and March has enabled the American crude benchmark to break decisively above $50 a barrel for the first time since February. Goldman Sachs Group Inc., however, cautioned against too much optimism, saying the decision probably reflected the kingdom’s expectations for demand to weaken further.

Covid-19 continues to surge. The U.K. recorded more than 1,000 daily deaths for the first time since April, Japan is set to declare a state of emergency in Tokyo and surrounding areas and China partially shut off a city near Beijing.

“Although U.S. crude inventories fell by a whopping amount, the increases in gasoline and distillate stockpiles do show the current state of virus infection spread,” said Stephen Innes, chief market strategist at Axi. “But at the same time, confidence among investors is building that the Saudis-OPEC+ efforts and a new Biden administration may provide some relief.”

Prices

  • West Texas Intermediate for February delivery rose 0.9% to $51.09 a barrel on the New York Mercantile Exchange as of 7:51 a.m. in London
  • Brent for March settlement added 0.8% to $54.73 on the ICE Futures Europe exchange after rising 1.3% in the previous session

U.S. crude stockpiles fell by around 8 million barrels last week, more than the median estimate in a Bloomberg survey for a drop of 2.7 million barrels, according to Energy Information Administration data. Gasoline and distillates inventories jumped by 4.5 million barrels and 6.4 million barrels, respectively, reflecting plummeting demand for fuels as the pandemic restricts movement.

The Saudi output cuts have reshaped the oil futures curve. Brent’s prompt timespread is 16 cents in backwardation, a bullish market structure where near-dated prices are more expensive than later-dated ones, compared with a contango of 7 cents on Monday.

Other oil-market news

  • Attacks on tankers and the seizure of vessels in the Middle East have raised concern about escalating tension in the oil-rich region, but freight rates are painting a different picture.
  • The winter freeze is driving up heating oil demand, but it’s not enough for South Korea’s biggest refiner to lift record low processing rates.
  • The U.S. didn’t import any Saudi crude last week for the first time in 35 years, a reversal from just months ago when the Kingdom threatened to upend the American energy industry by unleashing a tsunami of exports into a market decimated by the pandemic.

© 2021 Bloomberg L.P.



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