Dubai: Oil extended a rally after US stockpiles fell and investors applauded reopening drives in the US and Europe that will aid demand.
West Texas Intermediate surged 1.2% at the open, the most since Nov. 4, Brent neared $70 a barrel, and gasoline futures hit the highest since July 2018. The American Petroleum Institute reported crude supplies fell by 7.69 million barrels last week, according to people familiar with the data. If confirmed by government figures on Wednesday, that would be the largest drop since late January. The API report also showed lower gasoline and distillate inventories.
Aiding the outlook for improved oil consumption, the U.S. is setting a new target of 70% of U.S. adults receiving at least one Covid-19 vaccine shot by July 4, while British Prime Minister Boris Johnson said his country's lockdown rules are will be scrapped in seven weeks. That's offsetting concerns about weaker demand in parts of virus-hit Asia, including key importer India.
Rising bets on demand
U.S. futures have soared by more than a third this year, part of a broad rally across raw materials that's driven the Bloomberg Commodity Spot Index to the highest level in almost a decade. Investors are betting that rising vaccine-aided demand and greater mobility in key economies will drain crude stockpiles and support higher prices. That's meant oil has extended gains in recent weeks even amid the serious virus flare-ups in Asia.
"The rally has some momentum behind it," said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd., adding that crude is a big part of the very strong investor appetite being seen for commodities. "The recovery was always going to be uneven and we are now starting to see more positive factors align, which is stoking hopes for an even stronger pick up in demand in the medium term."
While the U.S. and Europe are charting a course for reopening, the Covid-19 crisis in India may yet worsen, with some research models projecting the death toll could more than double. The nation's oil imports may tumble by more than 1 million barrels a day to 3.1 million in the coming weeks, according to Kpler.
Still, Brent's pricing patterns reflect the overall bullishness, with near-term contracts above those further out. The prompt timespread was 46 cents a barrel in backwardation compared with 32 cents a month ago. In addition, the December 2021 contract was $4.00 more costly than the same month in 2022.