Third Consecutive Gain For Oil As U.S. Stockpiles Continue To Drop

Meanwhile, travel shrinkage in China won't hamper demand recovery in Q2: File Image/PixaBay

For a third consecutive session, crude prices on Wednesday rose in the neighbourhood of 2 percent, with West Texas Intermediate reaching its highest settlement in a year, on the strength of U.S. stockpiles falling last week to 475.7 million barrels.

The inventory rate, the lowest since March, was reported by the Energy Information Administration and caused WTI to rise 93 cents, or 1.7 percent, to settle at $55.69 per barrel, the highest since January 22, 2020.

Brent on Wednesday rose $1, or 1.7 percent, to settle at $58.46 per barrel, the highest since February 21, 2020.

Both benchmarks are also currently at their steepest 'backwardation' level in a year, a signal of current demand and expectations of tighter supply - both of which are presumably supported by the Covid vaccination program that is already seeing significantly reduced infection rates in the U.K., Israel, the U.S., and other countries.

Andrew Lipow, president of Lipow Oil Associates, said, "The oil market continues to look for better days ahead with an increasing rollout of the vaccine, encouraging demand, while OPEC+ continues to restrain production" - indeed, the Organization of the Petroleum Exporting Countries expects the oil market to be in deficit throughout 2021, peaking at 2 million barrels per day in May.

More good news focused on China, a concern to analysts because of fresh Covid outbreaks in certain parts of the country: China's Ministry of Transport said passenger trips during the spring travel season could be down by 40 percent from the pre-pandemic levels of 2019, however, this won't undo the resurgence in oil consumption and growth over the second half of 2020, with a 2 million to 3 million barrel per day rise expected compared to last year.