Oil edges higher with shrinking stockpiles tightening market
Oil edged higher above $73 a barrel as falling stockpiles in the US and China added to bullish sentiment around the global demand recovery.
Gasoline inventories in the US unexpectedly fell last week, while nationwide crude supplies dropped for a fifth week, the longest run since January. Chinese stockpiles have also shrunk to the lowest this year, according to data provider Kayrros, with the market tightening as key consumers rebound from Covid-19.
Oil may be facing some near-term turbulence, however, with one technical indicator signaling that prices may have climbed too far, too fast. Crude is flirting with the overbought territory on the 14-day Relative Strength Index.
The recovery has accelerated as vaccinations are rolled out worldwide, boosting fuel consumption and helping to drain stockpiles that were built up during the height of the pandemic. The OPEC alliance is scheduled to meet toward the end of next week to discuss its production policy for August and some nations are considering backing an output increase.
“A tightening market seems to be more than enough to offset a hike in OPEC production,” Margaret Yang, a strategist at DailyFX in Singapore. Any output increase from the alliance “should be very slow and gradual,” she added.
Meanwhile, US negotiators are preparing to return to a seventh round of indirect talks with Iran on reviving a nuclear deal. A rejuvenated agreement may lead to the lifting of sanctions on Tehran and increased crude flows, although progress has been slow and complicated so far.
The prompt timespread for Brent was 71 cents a barrel in backwardation — a bullish structure where near-dated contracts are more expensive than later-dated ones. That compares with 85 cents at the start of the week.
US crude stockpiles fell by 7.6 million barrels last week, while inventories at the storage hub of Cushing dropped for a second week, according to data from the Energy Information Administration on Wednesday. Gasoline supplies shrunk by 2.9 million barrels, compared with a forecast gain in a Bloomberg survey.
Chinese crude oil inventories, meanwhile, fell to about 974 million barrels in the week ended June 22, down from more than 1 billion barrels at the end of March, according to Kayrros. Stockpiles at the nation’s 190 terminals were at about 973 million barrels at this time last year, it said.