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Oil advanced as expectations for shrinking American crude and gasoline stockpiles added to signals that a demand recovery may be on the horizon in the U.S. and China.
Futures edged 0.4% higher in New York on Tuesday, tracking a move higher in U.S. equities to fresh records. U.S. manufacturing expanded in August at the fastest pace since late 2018 and a private gauge of China factory activity last month grew at the quickest pace since January 2011.
Prices extended gains in after-market trading as data from the industry-funded American Petroleum Institute showed U.S. crude inventories declined more than 6 million barrels last week. Both gasoline and distillate supplies also decreased, the API report showed. The U.S. government will release its supply tally on Wednesday.
“Gasoline inventories are getting pretty close to levels of last year at this time,” said Tom Finlon of GF International. “It’s indicative that demand is coming back a little bit.”
Still, U.S. gasoline inventories remain at the highest seasonal level in decades with the pandemic discouraging Americans from traveling.
U.S. benchmark crude futures are rallying after posting a fourth straight monthly gain in August in the wake of shrinking domestic inventories and with the Organization of Petroleum Exporting Countries committed to showing restraint on production. Goldman Sachs Group Inc. said earlier this week that fundamentals appear skewed toward a faster-than-expected rebalancing in 2021 due to the rising likelihood of a vaccine next spring and discipline by OPEC+ and shale producers.
“As we’re seeing a little bit more economic recovery and especially as we see easing of some travel restrictions, we expect people to increase their petroleum demand,” supporting prices, said Gary Cunningham, director of market research at Tradition Energy.
Meanwhile, observed flows of crude and condensate leaving Iran last month fell to the lowest level since February, according to tanker-tracking data monitored by Bloomberg. Saudi Arabia’s observed crude exports rose slightly in August as the OPEC+ alliance relaxed output cutbacks, monthly tanker-tracking data compiled by Bloomberg show.
Still, longtime laggards Nigeria and Iraq appear to be adhering to additional compensatory cuts, with OPEC’s monthly crude production in August rising by only half the amount permitted under their agreement.
In physical markets, Heavy Western Canadian Select’s discount for October against WTI futures narrowed to $9.85 a barrel, the first time the discount fell below $10 since Aug. 17, NE2 Group data show. The price surge comes as Inter Pipeline Ltd. shut the west segment of its Polaris pipeline, which supplies condensate used to dilute bitumen produced in the oil-sands mining region, following a spill.
The coronavirus pandemic is continuing to wreak havoc on major shale drillers and oil-field service companies. Schlumberger – the world’s top oilfield-services company — agreed to sell its U.S. and Canadian fracking business, abandoning the work that spawned the past decade’s North American oil boom.
