Oil extended gains from a two-week high after U.S. crude and fuel stockpiles posted strong declines, signaling peak summer demand remains robust despite a resurgence of COVID-19.
Futures in New York traded near $73 a barrel after climbing one per cent on Wednesday. Crude inventories dropped more than expected last week to the lowest since January 2020, while supplies of distillates – a category that includes diesel – slid the most since April, government data showed. Oil has also been supported as a weaker dollar boosts the appeal of commodities priced in the currency.
The U.S. Federal Reserve indicated on Wednesday that it wasn’t quite ready to wind down economic support measures, which not only pressured the dollar but pushed up equities.
“The perception of a dovish Fed is weighing on the dollar and lifting risky assets,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “At the same time, ongoing declines in oil inventories are supporting crude from a fundamental perspective, and should continue as summer holidays in the northern hemisphere lift demand.”
Oil has been whipsawed throughout July and is set for only the second monthly loss since October after the virus comeback coincided with an OPEC+ agreement to increase output from August. The fast-spreading delta variant has led to renewed restrictions in some regions and raised concerns about short-term demand, although there are expectations the market will continue to tighten.
- West Texas Intermediate for September rose 0.7 per cent to $72.92 a barrel on the New York Mercantile Exchange at 10:33 a.m. London time.
- Brent for September, which expires Friday, gained 0.5 per cent to $75.12 on the ICE Futures Europe exchange, after adding 0.4 per cent on Wednesday.
- Its prompt timespread was 84 cents a barrel in backwardation – a bullish market structure – compared with 64 cents a week earlier.
U.S. crude stockpiles shrank by 4.09 million barrels last week, according to data from the Energy Information Administration, compared with forecasts for a 2.5 million-barrel decline in a Bloomberg survey. Gasoline inventories also fell, dropping by 2.25 million barrels.
© 2021 Bloomberg L.P.