Supplies of crude plummet amid rise in demand
Analysts say oil market still faces major risks
Commercial crude inventories plunged by 8 million barrels last week as an improving economy lifted demand for petroleum products.
The Energy Department reported Wednesday that petroleum demand is recovering quickly from a year ago, when the coronavirus pandemic restricted travel and economic activity. Average gasoline consumption over the past four weeks has surged 56 percent from the same period a year ago, according to the Energy Department. Demand for all petroleum products is up 34 percent.
The drop in crude inventories was offset by a 700,000-barrel increase in gasoline stockpiles, which remain about 2 percent below average for this time of the year, the Energy Department said. Jet fuel inventories also rose, but stockpiles of all petroleum products fell by 5.6 million barrels.
Oil prices surged above $66 a barrel Wednesday before retreating to close at $65.63 a barrel, down 6 cents.
Abhi Rajendran, a research director at Energy Intelligence in New York, said shrinking U.S. inventories of petroleum products, as well as an overall rise in demand, are supporting higher prices. Recent economic indicators are signaling a strong economic rebound as more Americans get vaccinated, find jobs and spend stimulus checks.
The Commerce Department reported last week that consumer spending increased 4.2 percent in March, supported by a record-breaking 21.1 percent increase in personal income that was boosted by stimulus payments.
“U.S. optimism is strong and warranted,” Rajendran said.
But oil markets still face risks. Phil Flynn, a senior energy analyst at The PRICE Futures Group
in Chicago, said he’s keeping an eye on multilateral negotiations that would bring the United States back into the Iran nuclear deal. Former president Donald Trump withdrew the United States from the pact.
If a revised agreement leads to the lifting of sanctions on Iran, it could put another 2.5 million barrels per day on the market and upset a delicate balancing act by OPEC and its allies, who have curbed production. Those extra supplies on top of concerns about COVID-stricken India could undercut the rally.
Rystad Energy, a Norwegian consultancy, estimated the resurgence of the pandemic in India could cut global demand by 4 million barrels per day. But growing Chinese and U.S. demand could offset that decline.
“Near term, there are concerns on declining Indian oil demand and uncertainty on how many further Iranian barrels find their way to the oil market over the coming months,” said Giovanni Staunovo, a commodities analyst at Swiss investment bank UBS. “I still believe once the vaccine rollouts gain further pace this year, people will likely go out again, and this will support oil demand and oil prices.”