Oil is poised for the longest winning streak in almost two years after an industry report pointing to another decrease in U.S. crude stockpiles added impetus to a new year rally driven by Saudi Arabian output cuts.
Futures in New York rose for a seventh session toward $54 a barrel, heading for the longest run of gains since February 2019. The American Petroleum Institute reported crude inventories dropped by 5.82 million barrels last week, according to people familiar with the figures. If confirmed by official government data on Wednesday, it would be a fifth weekly draw.
Crude is also getting a boost from a weaker dollar, which is making raw materials like oil that are priced in the currency more attractive to investors. Saudi Arabia, meanwhile, trimmed supply to at least nine refiners in Asia and Europe for February after flagging additional production curbs last week.
Covid-19 vaccine breakthroughs and the recent Saudi pledge to deepen cuts have underpinned a meteoric rise for oil since the end of October, with prices up almost 50%. There are still concerns about the global fuel demand recovery as the virus continues to spread in some regions. Japan is set to expand its state of emergency and an outbreak in China appears to be worsening.
“This oil rally definitely has legs,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific. “This is mostly driven by the API data, which reported a big fall in inventories. We could see oil move further toward $55 a barrel by the end of the week.”
The rally, however, is testing the technical limits of both the U.S. benchmark and Brent crude in London after prices surged into overbought territory, signaling a correction is due.
Brent’s prompt timespread was 9 cents a barrel in backwardation — a bullish structure where near-dated prices are more expensive than later-dated ones — compared with a 7-cent contango at the start of last week.
The API also said that fuel stockpiles rose last week. Gasoline inventories climbed by 1.88 million barrels, while distillate supplies — which include diesel — gained by 4.43 million barrels. The median estimate in a Bloomberg survey forecast the Energy Information Administration will report nationwide crude inventories dropped by 3 million barrels.