Big Stockpile Draw Boosts Oil Prices, as "Bullishness" Anticipated In New Year

However, concern lingers that inventories are 10 percent higher than a year ago: File Image/Pixabay

A healthy draw in U.S. oil inventories plus a second Covid vaccine approved for the U.K. offset disappointment over more delays for a Covid fiscal aid package from Washington and caused crude prices on Wednesday to settle higher, but modestly so.

Brent settled up 25 cents to $51.34 per barrel, and West Texas Intermediate settled up 40 cents to trade at $48.40.

With the U.K. drawing attention for being a European Covid epicentre as well as a litmus test for potential demand recovery, traders welcomed news that it now has enough vaccine to cover the entire population after the AstraZeneca–Oxford serum was approved for use on Wednesday; also, over 12.4 million doses have been distributed throughout the U.S. to date in an early rollout.

Meanwhile, U.S. crude inventories fell for the week ended December 25 far more than expected, by 6.1 million barrels to 493.5 million barrels, compared to analytical predictions for a 2.6 million barrel drop; plus, exports rose slightly to 3.6 million barrels per day (bpd) from 3.1 million bpd a week earlier. 

Also, gasoline stocks fell by 1.2 million barrels in the week to 236.56 million barrels, according to the Energy Information Administration, compared with  expectations for a 1.7 million barrel rise.

However, distillate stockpiles, rose by 3.1 million barrels to 152.03 million barrels, causing John Kilduff, founding partner at Again Capital, to remark, "The decline in diesel fuel demand, distillate fuel demand, signals the end of all of us seeing the Amazon trucks every five minutes on your street, so I think we're going to see that decline in the post-holiday period."

U.S. crude inventories were ending the year over 10 percent higher than the last week of 2019: a phenomenal improvement considering market circumstances earlier in the year, but disappointing enough for Bob Yawger, director of energy futures at Mizuho, to state, "We couldn't even pull down storage levels with a 6.1 million inventory draw which is sad but a reality, and it took the wind out of the sails for a big rally."

Also on Wednesday, sources at the Organization of the Petroleum Exporting Countries (OPEC) told media that compliance with supply cuts in November was 101 percent and suggested that the cuts won't fluctuate any time soon: "Is the oil demand forecast for the first quarter of 2021 better than that forecast in early December? I don't believe so, given the lockdown in many countries in Europe until the end of January."

Still, the overarching positive news of the vaccine rollouts cannot be underestimated, according to Michael Rothman, founder of Cornerstone Analytics: he told Bloomberg that the efficacy of the vaccines and the expectation of an economic rebound "bodes very bullishly for oil" and that bullishness in the near term is equally plausible due to "a much more robust picture for demand and not nearly as robust a recovery in non-OPEC supply."