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Oil Trades Near 2018 High as Report Signals Falling Stockpiles


(Bloomberg) Oil held near its highest since October 2018 as an industry report pointing to a decline in U.S. crude inventories reinforced optimism over the demand recovery.Futures in New York pared earlier gains. The American Petroleum Institute reported stockpiles fell by 5.36 million barrels last week, said people familiar. That would be the biggest draw in a month if confirmed by official data.Saudi Arabia hiked its official selling prices to Asia by more than expected as crude prices continue to rise and forecasts of a tighter market abound. The nation’s energy minister reiterated that evidence of higher demand will have to come before supply increases.

Oil has climbed on signs of improving demand

So far this week, crude has undergone a strong rally as optimism around rising fuel demand is growing, particularly in the west, though trading activity has remained muted. The U.S., China and Europe are rebounding strongly from the pandemic, and upbeat comments from OPEC+ and the International Energy Agency added to the positive outlook. The Covid-19 comeback across Asia and Latin America, however, is a reminder that the recovery is likely to be uneven and bumpy.

Nuclear talks between Iran and world powers, meanwhile, have been adjourned until next week as differences between Tehran and the U.S. delay the revival of a deal. The prospect of returning Iranian barrels is setting up a possible battle to supply the South Korean market with condensates.

“The majority expect further tightening of the oil balance, the price action over the past two trading sessions suggests,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “They believe that despite OPEC+’s decision to stick with the current plan and gradually increase production through July and possibly beyond the improvement in global consumption will better the rise in supply.”

Prices
  • West Texas Intermediate for July delivery gained 13 cents to $68.96 a barrel at 8:40 a.m. New York time
  • Brent for August settlement added 14 cents $71.49

Some of the biggest moves in recent days have come in the oil market’s structure. The much-watched spread between the nearest two December contracts has rallied to its strongest level since 2019 on a rolling basis, with a premium of more than $5 a barrel for WTI. That structure indicates tight supply.

Despite crude’s rally, holdings of ICE Brent futures contracts have fallen sharply in recent weeks. Total open interest on the global benchmark is near its lowest since December, and was overtaken by Nymex WTI for the first time since 2018 in recent days.

Other market news:
  • OPEC increased output last month as the group proceeded with plans to restart some of the supplies halted during the pandemic.
  • Schlumberger expects the economic recovery to trigger an energy-industry supercycle that will fatten margins for the world’s biggest oilfield-services company.


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