Dubai: Oil rallied to the highest level since 2018 after data showed a substantial draw in US crude stockpiles, adding to evidence of a tightening market as economies reopen and top traders predict further gains.
West Texas Intermediate climbed 0.6 per cent after Tuesday's 1.8 per cent surge, while Brent closed in on $75 a barrel. The industry-funded American Petroleum Institute reported U.S. crude inventories fell 8.54 million barrels last week. That would be the largest drop since January if the figures are confirmed by government data later Wednesday. Still, inventories of gasoline and distillates expanded.
Oil's rally has been reinvigorated this month as leading economies continue to reopen, aided by coronavirus vaccine programs. That's boosting worldwide energy demand just as the Organization of Petroleum Exporting Countries and its allies maintain a cautious approach to boosting supply. Executives from both Glencore Plc and Vitol Group said this week they see further gains in oil.
"It has been a direct path up for oil for a month now, fueled by optimism over rising consumption as global vaccination continues in earnest," said Howie Lee, an economist at Oversea-Chinese Banking Corp. "We see the market in supply deficit for the rest of 2021, and may peak at $80 before year-end," he added, with the key downside risk being the delta variant of the Covid-19 virus.
In the US - where shale producers have refrained from substantial increases in output this year even as prices march higher - anti-virus measures are being steadily withdrawn. On Tuesday, California fully reopened its economy, the world's fifth-largest, while New York lifted its remaining restrictions.
The market's pricing structure reflects the overall bullish tone, with near-dated prices above those further out. Brent's prompt timespread was 73 cents a barrel in backwardation, up from 47 cents a week ago. The upcoming December contract was $5.09 more costly than the price for the same month in 2022.
Crude's latest upswing has come ahead a potentially pivotal Federal Reserve policy announcement later Wednesday. While the U.S. central bank is not expected to alter interest rates, it could start preliminary discussions about when and how to scale back bond purchases. Any moves on that front could affect the value of the dollar and demand for commodities, including oil.