Oil prices extended their gains after markets managed to close at the highest level in over a year on February 2 as declines in the Chinese and US crude stockpiles added the rally arising from the tightening global supplies.
The crude oil futures in New York surged above $55 as the American Petroleum Institute (API) reported that crude inventories fell by 4.3 million barrels in the past week. If confirmed by government data, it would be the seventh decline in eight weeks. On the other hand, the Chinese stockpiles plunged to the lowest levels in almost 12 months, according to Kayrros data.
These tighter supplies are seen to be bringing traders flocking back to the oil market. Holdings of the WTI futures contracts are currently at their highest level since April 2020 after they increased by a total of over 235 million barrels so far in 2021.
Cutting down these stockpiles has been a primary objective for OPEC and its allies. A committee of the alliance is expected to meet later today to discuss the supply and demand scenario as the health crisis continues to cause havoc. Nonetheless, more vaccines are being rolled out creating a positive sentiment in the oil markets.
Crude futures’ price curve is now established in a bullish backwardation structure which may now indicate that the investors in the oil market are comfortable.
“The crude oil market is getting close to a frenzy,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “A reflection of the tightening global crude oil market is the continued strengthening of the Brent crude oil curve.”
Oil markets appear promising in the first week of February. The West Texas Intermediate rose by about 0.7% to reach $55.13 at 10:19 a.m. in London. On its part, Brent for April settlement advanced by 0.9% to trade at $57.99.
Interestingly, an OPEC+ technical panel said on February 2 that it expects the oil surplus to drain by the middle of this year after Saudi Arabia’s unilateral output cuts. Morgan Stanley published that visible stockpiles have dropped by around 3.6 million barrels a day in the past 30 days.
The prices further out along the futures curve are also rising. WTI for the coming year topped $50 a barrel on February 3, 2021, to trade at the highest since February. It might incentivize producers to add more supply in the months ahead.