Oil extended gains toward $42 a barrel in New York after an industry report pointed to a bigger-than-expected decline in US crude stockpiles, adding to bullish momentum after a vaccine breakthrough.
The American Petroleum Institute reported crude inventories dropped by 5.15 million barrels last week, with gasoline and diesel stockpiles also decreasing, according to people familiar with the data. Official government figures are due Thursday. The median estimate in a Bloomberg survey forecast nationwide crude stockpiles shrunk by 1.9 million barrels.
Oil has rallied more than 11% over the past two days, buoyed initially by the election of Joe Biden as US president and followed by a broader market surge on the vaccine news. The gains have come even as Covid-19 infections surged in Europe and the US, with Italy reporting the most fatalities since April and American cities including San Francisco announcing new restrictions.
There are reasons to be wary of the latest price surge, however. Early findings on a vaccine showed it protected most people from Covid-19, but it’s likely to take some time to roll out if it proves effective. Goldman Sachs Group Inc. said fresh outbreaks will present a speed bump, while BMO Capital Markets said it is “too soon” for $50 oil as the market contends with rising Libyan output.
“The giddy risk-on trade of the past couple of days is pricing in future hope, but not the immediate practicalities and realities of a worsening virus surge on both sides of the Atlantic,” said Vandana Hari, founder of Vanda Insights in Singapore. The timing and access to a potential Covid-19 vaccine point to plenty of challenges, she added.
Brent’s three-month timespread was 80 cents a barrel in contango — where prompt prices are cheaper than later-dated ones. That’s the smallest contango since July, signaling concerns about over-supply have eased.
US gasoline stockpiles dropped by 3.3 million barrels last week, while distillate inventories, which includes diesel, shrank by 5.62 million barrels, the API reported Tuesday. The Bloomberg survey is predicting motor fuel supplies expanded by 400,000 barrels.
The next major event for the market is the OPEC+ meeting at the end of the month, with Vitol Group predicting a major draw on excess global inventories if the group delays a planned easing of cuts.