Oil markets are benefitting from the prospect of a new US stimulus deal, a weaker dollar and a surprise inventory draw, allowing the commodity to hit a nine-month high.
US crude inventories fell by 3.1 million barrels in the week to 11 December, according to the the Energy Information Administration (EIA). Analysts had expected a 1.9 million barrel drop, after stockpiles surged in last week’s data.
The benchmark Brent (BZ=F) crude price was up 1.1% at around 8.50am on Thursday, reaching $51.65 (£37.45) a barrel.
Still, Michael Hewson, chief market analyst at CMC Markets, cautioned against celebrating too soon.
“While this is well off the lows of the year, to the tune of 170%, it is important to remember that Brent prices are still 25% lower on the year,” he said.
Brent crude prices have been soaring since the start of November to around $50 a barrel as governments began rolling out COVID-19 vaccines. News of progress on a US coronavirus relief package has also supported prices.
Yet with COVID-19 cases growing in the US and parts of Europe and the knock on effects of restrictions mounting in the immediate term, less people will be out travelling in transportation that requires fuel.
With worldwide demand being weak, with the exception of China, the Organisation of the Petroleum Exporting Countries (OPEC) announced on Monday that it was cutting its forecast for global fuel consumption in the first quarter of 2021 by 1 million barrels a day.
The International Energy Agency (IEA) also warned on Tuesday that it would take some time to reverse the collapse in global oil demand ushered in by the pandemic. As such, the IEA revised down its estimates for oil demand this year by 50,000 barrels per day (bpd) and for next year by 170,000 bpd, citing reduced jet fuel use as fewer people travel by air.
The trajectory for oil will largely depend on how the pandemic and subsequent vaccination efforts unfold, according to Craig Erlam, senior market analyst at OANDA Europe.
“OPEC+ has made its move, now it's time to wait and see how the next couple of months of the virus unfolds” he said.
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