Oil rally pauses after report points to rising US stockpiles

Oil held near its highest level in almost 10 months after an industry report pointed to an increase in US crude stockpiles, taking some of the steam out of a vaccine and stimulus-driven rally.

Futures traded near $48 a barrel in New York after the American Petroleum Institute reported crude inventories climbed by 1.97 million barrels last week, according to people familiar with the data.

That would be a second weekly gain if confirmed by official government figures on Wednesday.

In Asia, meanwhile, a rally in the physical market is gathering pace as buyers snap up barrels at higher prices. However, the demand recovery is looking uneven with China’s daily oil refining rising to a record last month, but South Korea’s crude imports sliding to a 10-year low and predicted to fall further.

Optimism about a swift demand recovery with the rollout of Covid-19 vaccines has oil trading at levels last seen before the outbreak sparked lockdowns across the world, although the market is still facing a number of near-term hurdles. A resurgence of the virus, however, is crimping fuel consumption in some regions and OPEC+ is set to unleash more supply next month after the group agreed to gradually ease its crude production cuts.

“There’s a huge risk to the vaccine rally, we are at peak vaccine optimism,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific in Sydney. Oil may face further headwinds from a stronger US dollar or a breakdown in the OPEC+ output agreement, he said.

Crude has climbed 2.3 per cent over the past two sessions to the highest level since February as the US Congress moved toward a stimulus package and as the nation started delivering the first doses of a coronavirus vaccine.

Prices

• West Texas Intermediate for January delivery fell 6 cents to $47.56 a barrel on the New York Mercantile Exchange at 1.34pm Singapore time after gaining 1.3 per cent on Tuesday.
  Brent for February settlement slipped 0.2 per cent to $50.66 on the ICE Futures Europe exchange after rising 0.9 per cent in the previous session to close at the highest since early March.
• Brent’s prompt timespread was 5 cents a barrel in backwardation, compared with 9 cents a week earlier.

It’s still going to take some time to work through the crude glut left behind by the pandemic, with the International Energy Agency warning the surplus will clear by the end of next year. The market is facing a gradual recovery marked by renewed strains on demand, the agency said in a report on Tuesday.

US gasoline stockpiles, meanwhile, expanded by 828,000 barrels last week, the API reported. Inventories of distillates, a category that includes diesel, increased by 4.76 million barrels.