- Crude oil prices rallied to their highest levels in over a year on Tuesday, with WTI surpassing $55.00.
- Bullish inventories spurred upside into the Tuesday futures market close.
Crude oil prices rallied to their highest levels in over a year on Tuesday. Front-month futures for West Texas Intermediary (WTI) rallied from the mid-$53.00s to above $55.00 per barrel for the first time since January 2020, prior to the global spread of the Covid-19 virus, closing the session with gains of $1.51 or nearly 3%. Brent also saw daily gains of around $1.50, hitting the $58.00 mark for the first time in a year. As usual, futures trading has now paused until the Wednesday reopen at 23:00GMT.
Bullish inventory data
Crude oil markets saw a spike into the close of Tuesday futures trade following a bullish weekly API inventory report; crude oil stocks saw a surprise drawdown of 4.3M barrels (expectations were for a modest 400K barrel build). Gasoline stocks also saw a surprise drawdown or 200K barrels (versus expectations for a 1.1M barrel build). Meanwhile, the drawdown in Distillate stocks was larger than expected at 1.6M and Cushing stocks also dropped by 1.9M. In sum, API data showed inventories unexpectedly dropping across the board, a signal of stronger than anticipated demand in the week ending on 25 January.
Driving the day
Meanwhile, prior to inventory numbers, a number of other bullish catalysts contributed to the improvement in crude oil market sentiment on the day; 1) the US Congress is getting a move on with regards to the next US economic growth and crude oil demand boosting fiscal stimulus package (the size and scope of the package is yet to be determined but it is expected to be large), 2) vaccine news was positive, with strong data on the efficacy of both Russia’s Sputnik V and the UK’s Oxford University/AstraZeneca vaccine candidates (this will ease some concerns about new strains and poor efficacy), 3) bad weather in the North East of the US driving the price of heating oil to eight-month highs (and crude oil in sympathy).
Looking ahead, OPEC+ will meet on Wednesday. The OPEC+ Joint Technical Committee met on Tuesday and issued new forecasts; as its base case, the JTC expects the oil market deficit to peak at 2M barrels per day in May, and for oil, stocks to drop in every month of the year. That means that OPEC+ inventories could fall below their five-year average levels by the end of Q2. Commodities analysts at Citi think that the declining inventories and rising prices will eventually spur the cartel into easing supply cuts. The bank “anticipate(s) that Saudi Arabia will reverse its 1.0M bpd “voluntary” production cut in April, with the wider OPEC+ restrictions likely to ease again beginning in May.”
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