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Oil extended gains to near $75 a barrel after an industry report showed US inventories shrunk as global output disruptions continued to stoke concerns over supply shortfalls.
Crude in New York increased as much as 1% as the premium on front-month futures surged even higher against later contracts.
The American Petroleum Institute was said to report nationwide stockpiles dropped 4.51 million barrels last week. While the Saudi Cabinet affirmed the kingdom is ready to use its spare capacity as needed, the Middle Eastern nation also reiterated with Russia that OPEC’s agreement with allies is to boost output by 1 million barrels a day.
Oil is trading near the levels last seen in 2014 as a drop in global output due to disruptions from Libya to Canada and Venezuela were seen outweighing production gains by the Organisation of the Petroleum Exporting Countries.
Morgan Stanley increased its Brent crude forecast to $85 a barrel next year, while President Donald Trump continued to push OPEC’s biggest producer Saudi Arabia to pump more and reduce petroleum prices for consumers.
“Recent up moves have been surprising, and the disruptions have caught a lot of traders by surprise,” Michael McCarthy, a chief market strategist at CMC Markets, said by phone from Sydney.
“We’re likely to see further gains as the shift from a surplus to a deficit will come faster than expected. The supply side is constrained, and markets are vulnerable to upside risks, and larger-than-anticipated draws in the US are very supportive in the short term.”
Oil prices
West Texas Intermediate crude for August delivery traded at $74.15 a barrel on the New York Mercantile Exchange, up 1 cent at 09:21.
Prices rose 20 cents to close at $74.14 on Tuesday, after breaching $75 for the first time since 2014. The premium for front-month futures widened to $2.64 a barrel against September delivery contracts. Total volume traded was about 12% below the 100-day average.
Brent for September settlement was 0.3% higher at $77.99 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $6.38 premium to WTI for the same month.
Yuan-denominated futures for September delivery slid 1.4% to 496.7 yuan a barrel on the Shanghai International Energy Exchange. The contract closed 0.4% higher on Tuesday, capping the longest run of daily gains since its debut in late March.
Supplies shrink
As well as declines in nationwide stockpiles, inventories in the key storage hub of Cushing, Oklahoma dropped by 2.6 million barrels, the API was said to report. If confirmed by US government data on Thursday, that would be the seventh consecutive decline.
Nationwide stocks are forecast to have fallen by 5 million barrels, according to a Bloomberg survey.
Saudi Arabia said the country would “use its spare capacity when needed to deal with any future changes in oil supply and demand rates, in coordination with other producing countries,” according to a report in the Saudi Press Agency.
Earlier, the kingdom and Russia’s energy ministers reiterated the agreement reached last month in Vienna, following President Trump’s tweet over the weekend that said he’d received assurances from the Middle Eastern nation that it could increase production by double that volume.
Other oil-market news:
- President Trump’s tweets about OPEC and oil prices are more likely to worry the market and put upward pressure on prices than reassure it, Standard Chartered analysts wrote in a note on Tuesday.
- Venezuela’s distressed oil sector may get some much-needed financing from China, receiving authorisation for a direct investment of more than $250m from China Development Bank for its state-owned oil company to increase production.
