Global supply tighter, oil prices on way up

Oil was steady near its highest close in more than a year as a slump in U.S. oil inventories this month underscored the ongoing tightening of global supplies.

West Texas Intermediate in New York traded at $63.44 a barrel Thursday. Brent crude hit $67.08.

Inventories of U.S. oil have fallen by 40 million barrels over the past three weeks as coldweather drove demand for heating fuels, more than offsetting a rise in gasoline and crude stockpiles in the most recent data.

There has even been tentative speculation that oil could hit $100 a barrel again in the longer term.

Oil’s stellar start to the year occurs after Saudi Arabia’s deeper output cuts accelerated a rally triggered by covid-19 vaccine breakthroughs. While there’s been a raft of bullish calls recently, the market is facing a possible supply increase in April from the OPEC alliance, which meets next week to discuss its strategy with key members again differing on the way forward.

Oil “continues to benefit, just like copper, from expectations that supply will be kept tight while demand continues to recover,” said Ole Hansen, head of commodities strategy at Saxo Bank. “The question remains how much is speculative and how much is real demand driving the price higher.”

Shale explorers reported almost 6 million barrels of combined oil-output losses during the freeze last week. Occidental Petroleum Corp. and Pioneer Natural Resources Co., two of the largest producers in the Permian Basin, alone had a combined loss of about 3.8 million barrels, according to Bloomberg News calculations based on fourth-quarter earnings reports and calls.

That will focus the attention of the OPEC gathering. The talks are likely to lead to a rollback of Saudi Arabia’s unilateral output cut, according to Deutsche Bank.