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.
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