Oil slips after hitting 2018 high with market poised to tighten

Oil edged lower after closing at the highest level since October 2018 with an industry report pointing to a further draw in US crude stockpiles, adding to signs of a rapidly tightening global market.
 

Futures in New York traded near $75 a barrel after rising 1.6% on Tuesday. The American Petroleum Institute said crude inventories slid by more than 4 million barrels last week, according to people familiar with the data. That would be an eighth straight weekly draw, the longest run of declines since January 2018, if confirmed by government figures later on Wednesday.
 

Some uncertainty looms over the market, however. Indonesia posted a record number of new virus cases, while Sydney extended a lockdown as the delta variant continues to sweep the globe. The resurgence, as well as the OPEC+ impasse on raising crude production have clouded the short-term outlook.
 

The International Energy Agency is warning that the oil market -- which has already rallied more than 50% this year -- will tighten significantly if OPEC+ doesn’t resolve a standoff and boost production. Talks broke down last week and it’s looking increasingly likely that the alliance won’t add more supply in August as members lock in supply volumes to customers next month.

“Signs of a US economy recovery is clear and global supplies are tightening, but OPEC+ remains a wildcard,” said Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. in Seoul. Oil is likely to be volatile until the alliance reaches a compromise on supply, he added.
 

US oil demand has soared to new heights as the nation rebounds from the pandemic, with gasoline and diesel consumption returning to pre-virus levels. A surge in petroleum use for products such as plastic, asphalt, lubricants and other industrial needs is also propelling the recovery.
 

The market remains in a bullish structure, however, although it’s eased somewhat. The prompt timespread for Brent was 79 cents a barrel in backwardation -- where near-dated prices are more expensive than later-dated ones. That compares with 88 cents a week earlier.

US gasoline stockpiles fell by 1.54 million barrels last week, while distillate inventories rose by 3.7 million barrels, the API said.
Nationwide crude supplies are forecast to have dropped by 4 million barrels last week, according to a Bloomberg survey before the Energy Information Administration data.