Oil futures climbed Wednesday, with a nearly seven million-barrel weekly drop in U.S. crude supplies and expectations for another large round of government spending setting prices up to extend a winning streak that began at the start of February.
The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 6.6 million barrels for the week ended Feb. 5.
The data compared with the average decline of 2.7 million barrels forecast by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a 3.5 million-barrel decrease.
“A combination of higher refining activity and lower imports” resulted in a draw to oil inventories, “and chunky one at that,” said Matt Smith, director of commodity research at ClipperData.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by 700,000 barrels for the week.
Against that backdrop, West Texas Intermediate crude for March delivery
rose 21 cents, or 0.4%, to $58.57 a barrel on the New York Mercantile Exchange, putting the U.S. benchmark on track for an eight-day winning streak.
April Brent crude
the global benchmark, was up 19 cents, or 0.3%, at $61.28 a barrel on ICE Futures Europe, on track to extend its winning streak to nine days in a row.
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“As Brent prices rise above $60 a barrel, there is little reason to doubt that demand fundamentals will justify further recovery in oil prices to long term equilibrium of $65 a barrel and likely beyond by year-end as we are just starting to rev up the U.S. reflation trade engines,” said Stephen Innes, chief global markets strategist at Axi, in a note.
The so-called reflation trade is being driven by expectations for another large dose of fiscal stimulus by the U.S. with President Joe Biden calling for an aid package worth $1.9 trillion to boost recovery from the coronavirus pandemic. A final package is expected to be shy of that price tag but closer to it than had previously been expected.
Meanwhile, the EIA data also revealed that gasoline supply climbed by 4.3 million barrels, while distillate stockpiles were down 1.7 million barrels for the week. The S&P Global Platts survey had forecast a smaller supply increase of 2.7 million barrels for gasoline, and a decline of 1.7 million barrels for distillate inventories.
The report showed “another solid build to gasoline inventories, despite a tick higher in implied demand,” said Smith.
“Several factors will play out with crude prices as we go forward,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
Saudi Arabia unilaterally cutting its oil production in February and March, and recent weakness in the U.S. dollar could provide a tailwind for oil prices to go higher, he said.
However, the EIA, a monthly report released Tuesday, said it expects global consumption of petroleum and liquid fuels to rise by 5.4 million barrels per day this year, which is down by 200,000 barrels per day than the forecast given in January.
The estimates for crude demand were lowered once again, said Zahir. “The main factor will continue to be how well the [COVID-19] vaccine gets rolled out and we try to get back to somewhat of a normal world.”
“If we see any type of setback on the vaccine rollout, whether it is about supply or if the new strain gets a foothold here in the U.S., this could hamper the recovery of back to normal here in the U.S.,” he said. That “would continue to hamper demand for crude oil as we go forward.”
Rounding out action on Nymex, March natural gas
rose by 2.9% to $2.916 per million British thermal units, ahead of the EIA’s weekly update Thursday on supplies of the commodity.