Oil Rallied on Unexpected Drop in US Crude Inventories And Hopes For a Recovery in Demand

Oil prices increased, after reaching their highest levels in nearly a year in the previous session, supported by an unexpected drop in crude and gasoline inventories in the United States, which fueled hopes for a recovery in demand at a time when OPEC+ expects the market to record a deficit in 2021.

Market sentiment also received support from news that Democrats in the US Congress have taken the first steps towards introducing a $ 1.9 trillion aid plan to mitigate the fallout from Corona that President Joe Biden is proposing without support from Republicans.

US West Texas Intermediate crude futures rose 39 cents, or 0.71%, to $ 55.15 a barrel, gaining for the third consecutive session.

The benchmark crude reached a one-year high of $ 55.26 on Tuesday.

Brent crude futures rose to an 11-month high of $ 58.10 a barrel, to make gains for a fourth day after hitting 58.05 on Tuesday, the highest since January of last year.

The American Petroleum Institute announced that US crude inventories fell by 4.3 million barrels in the week ending January 29, compared with analysts’ expectations in a Reuters poll for a 446,000-barrel increase.

Gasoline stocks fell by 240,000 barrels, defying analysts’ expectations of a 1.1 million barrel rise, while distillate stocks, which include heating oil and jet fuel, fell 1.6 million barrels, a decline that exceeds expectations.

Today, US government data is due from the Energy Information Administration.

The market also received support from the latest estimate by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, the group known as OPEC+, that crude stocks will fall below the five-year average by June.

This indicates that the production cuts implemented by the producers succeeded in returning the balance to the market.

OPEC+ expects production cuts to keep the market in the deficit over the course of the year, and for the deficit to rise to a peak of 2 million barrels per day in May, even though the group revised downward its forecast for demand growth, as revealed by a document seen by Reuters yesterday.

A ministerial meeting will be held on Wednesday for the group, but it is unlikely to recommend any adjustments to oil production policy.