Oil Extends Rally After OPEC+ Pledges to Keep Clearing Surplus

Oil rose for a fourth day after OPEC and its allies pledged to continue whittling down the global surplus caused by the coronavirus pandemic.

Futures in New York climbed past $56 a barrel after closing at the highest level in more than a year. OPEC+ ministers led by Saudi Arabia and Russia “stressed the importance of accelerating market re-balancing without delay” amid “uncertain” prospects for and oil demand, according to a communique.

The alliance’s efforts appears to be working despite a still tenuous recovery in demand: U.S. crude stockpiles shrunk to the smallest in more than 10 months, government figures showed Wednesday, while Chinese inventories are at the lowest in almost a year, data provider Kayrros said. West Texas Intermediate is up almost 8% this week, while Brent is within sight of $60 a barrel.

Despite the downtrend in stockpiles, a recovery in fuel consumption remains shaky as lockdown measures limit mobility and concerns grow over the spread of several Covid-19 mutations. Saudi Arabia’s commitment to cutting output, however, has reshaped the oil futures curve into a more bullish structure that suggests investors are comfortable with the supply-demand balance.

“It’s likely the trend in the first two quarters will be positive, and stronger prices may see the return of more U.S. and Iran barrels,” said Suvro Sarkar, an energy analyst at DBS Bank Ltd. The recent volatility in stocks may also drive more investment into commodities, he said.

Brent’s prompt timespread is 29 cents a barrel in backwardation, where near-dated prices are more expensive than later-dated ones. That compares with a contango of 7 cents at the beginning of the year.

U.S. crude stockpiles fell by 994,000 barrels last week, according to the Energy Information Administration. However, gasoline inventories jumped by almost three times as much as forecast to the highest since June. The EIA projected that American oil production wouldn’t surpass 2019 levels until 2023.

While global energy demand remains uncertain in the coming months, the OPEC+ Joint Ministerial Monitoring Committee said on Wednesday that “the gradual rollout of vaccines around the world is a positive factor for the rest of the year boosting the global economy and oil demand.”