Oil advances after report points to declining US stockpiles

Oil in New York rose toward $53 a barrel as an industry report pointed to a drop in US crude stockpiles, adding to signs of easing supply.

Futures climbed 0.7% after slipping on Tuesday. The American Petroleum institute reported inventories fell by 5.27 million barrels last week, according to people familiar. If confirmed by government data on Wednesday, that would be the sixth draw in seven weeks. Broader financial markets are also awaiting the Federal Reserve monetary policy decision after its first meeting this year.

Prompt time spreads for the US benchmark and global Brent are in a bullish market structure and firming, indicating shrinking supplies. With the market switching to backwardation, “we are hopeful that 2021 will be a good year,” OPEC Secretary-General Mohammad Barkindo said.

Oil has jumped almost 50% since the end of October but the rally has faltered recently on concerns about the near-term demand outlook due to Covid-19. China is facing a resurgent outbreak, there are fears about virus variants, while the UK became the first nation in Europe with 100,000 deaths.

“With US supplies shrinking and OPEC+ still keeping a tight rein on the other part of the supply equation, the market is expected to be in a deficit despite the reduced demand from the resurgent virus,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore.

Russia plans to cut exports next month to keep crude for domestic use, Iraq and Saudi Arabia are trimming output, and Libyan shipments are being affected by internal turmoil. Brent’s prompt timespread was 29 cents in backwardation -- where near-dated contracts are more expensive than later-dated ones -- compared with a 7-cent contango at the start of the month.

US fuel stockpiles, meanwhile, expanded last week, the API reported. Gasoline inventories rose by 3.06 million barrels, while distillates -- a category that includes diesel -- increased by 1.4 million barrels.