Oil Jumps Over 1% As Sentiment Swings Back To Positive Demand Outlook

Yet another U.S. distillate drawdown that defied analytical expectations stoked demand recovery sentiment and caused traders to increase oil prices by over 1 percent on Wednesday.

The Energy Information Administration on Wednesday disclosed that distillate stockpiles, which include heating oil and diesel fuel, fell by 3.3 million barrels in the week, and refining rates rose to 85.4 percent of capacity, their highest since March 2020.

Also, U.S. crude inventories rose by only 90,000 barrels last week, much smaller than analysts' forecasts for a 659,000 barrel build.

Bob Yawger, director of energy futures at Mizuho, said, "Planting season is doing wonders for the distillate market; between planting season and online truck deliveries, you have a nice number in the diesel."

Brent on Wednesday gained 85 cents, or 1.3 percent, to settle at $67.27 per barrel; West Texas Intermediate rose 92 cents, or 1.5 percent, to settle at $63.86 per barrel.

Tentative bullish sentiment was supported by a host of positive factors that began earlier in the week with the Organization of the Petroleum Exporting Countries (OPEC) forecasting global oil demand in 2021 to grow by 6 million barrels per day (bpd), after demand plunged by 9.5 million bpd last year amid the pandemic.

On Wednesday, Goldman Sachs said it expected the biggest jump in oil demand in history at 5.2 million bpd over the next six months, as vaccination campaigns accelerate in Europe; the bank also predicted that easing international travel restrictions in May would hike jet fuel demand by 1.5 million bpd.

Tamas Varga, analyst at PVM Oil Associates, summarized matters by stating, "The market is supported by the general belief that the Covid endgame is in sight."

As for India, the source of recent trading angst thanks to soaring infections, Vivek Dhar, commodities analyst at Commonwealth Bank, remarked, "India is certainly a risk, but I don't think it's going to derail the story we have right now on this rate of recovery" in the U.S. and China.

Bjornar Tonhaugen, head of oil markets at Rystad Energy, agreed: "As vaccination campaigns progress and as lockdowns are set to soon be lifted in Europe and other recovering economies, the need for road and jet fuels will increase and the result will be felt."