Oil eyes highest finish since mid-March on a stronger demand outlook and drop in U.S. supplies
Oil futures traded sharply higher Wednesday, as the International Energy Agency lifted its demand outlook for crude and a U.S. government report revealed a third-weekly drop in weekly inventories, setting prices up for their highest finish since mid-March.
In its monthly report, the International Energy Agency raised its forecast for global oil demand in 2021 by 230,000 barrels a day from its previous forecast. It now sees an increase of 5.7 million barrels a day from 2020 to 96.7 million barrels a day this year.
“Oil prices might be breaking out of their month-long wicked trading range as the normally pessimistic IEA is sounding pretty darn bullish,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.
On Tuesday, the Organization of the Petroleum Exporting Countries increased its 2021 demand forecast by 100,000 barrels a day. It expects global oil demand to climb by about 6 million barrels a day to reach 96.5 million barrels a day this year. OPEC also raised its forecast for global economic growth to 5.4% from 5.1%.
Oil prices responded well to the latest demand updates, which pointed to higher uptake of the commodity as the global economy recovers from the pandemic.
West Texas Intermediate crude for May delivery CLK21,
Global benchmark June Brent crude BRN00,
Both WTI and Brent crude prices were on track to tally their highest front-month contract settlements since March 17, FactSet data show.
In a weekly report also issued Wednesday, the Energy Information Administration reported that U.S. crude inventories fell by 5.9 million barrels for the week ended April 9. That followed supply declines in each of the previous two weeks.
On average, analysts polled by S&P Global Platts forecast a decline of 2.9 million barrels for crude stocks, while the American Petroleum Institute on Tuesday reported a 3.6 million-barrel decrease, according to sources.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by 400,000 barrels for the week, while total domestic petroleum production rose by 100,000 barrels to 11 million barrels per day.
The EIA reported that gasoline supply was up by 300,000 barrels, while distillate stockpiles fell by 2.1 million barrels for the week. The S&P Global Platts survey had forecast a supply fall of 200,000 barrels for gasoline, but distillate inventories were expected to rise by 700,000 barrels.
U.S. stockpiles of gasoline are “now actually 10% below where they stood at this point in 2020,” Peter McNally, global sector lead for industrials, materials and energy at Third Bridge, told MarketWatch. “This is a situation that we are watching closely ahead of the summer driving season that begins in the U.S. next month.”
Overall, “the trends that have been in place — flat domestic production, low imports, and recovering demand — continue,” he said. “In fact, total product demand on a seasonally adjusted basis was higher than 2019 levels and the second highest on record.”
Meanwhile, oil traders have been weighing prospects for oil demand. This week, the market saw evidence of a strong economic recovery in China and the United States, but worries about surges in coronavirus cases in parts of the world and a fitful rollout of vaccines, including a pause in the rollout of Johnson & Johnson’s JNJ,
Geopolitical tensions also have helped support crude values. Oil futures finished higher on Monday, as reports that Yemen’s Iran-backed Houthi rebels attacked a Saudi oil facility lifted tensions in the oil-rich Middle East.
