Oil extended gains to near $75 a barrel after an industry report showed U.S. inventories shrunk as global output disruptions continued to stoke concerns over supply shortfalls.
Crude in New York increased as much as 1 percent as the premium on front-month futures surged even higher against later contracts. The American Petroleum Institute was said to report nationwide stockpiles dropped 4.51 million barrels last week. While the Saudi Cabinet affirmed the kingdom is ready to use its spare capacity as needed, the Middle Eastern nation also reiterated with Russia that OPEC’s agreement with allies is to boost output by 1 million barrels a day.
Oil is trading near the levels last seen in 2014 as a drop in global output due to disruptions from Libya to Canada and Venezuela were seen outweighing production gains by the Organization of the Petroleum Exporting Countries. Morgan Stanley increased its Brent crude forecast to $85 a barrel next year, while President Donald Trump continued to push OPEC’s biggest producer Saudi Arabia to pump more and reduce petroleum prices for consumers.
“Recent up moves have been surprising and the disruptions have caught a lot of traders by surprise,” Michael McCarthy, a chief market strategist at CMC Markets, said by phone from Sydney. “We’re likely to see further gains as the shift from a surplus to a deficit will come faster than expected. The supply side is constrained and markets are vulnerable to upside risks, and larger-than-anticipated draws in the U.S. are very supportive in the short term.”
West Texas Intermediate crude for August delivery traded at $74.59 a barrel on the New York Mercantile Exchange, up 45 cents at 11:28 a.m. in Singapore. Prices rose 20 cents to close at $74.14 on Tuesday, after breaching $75 for the first time since 2014. The premium for front-month futures widened to $2.64 a barrel against September delivery contracts. Total volume traded was about 35 percent below the 100-day average.
Brent for September settlement was 0.5 percent higher at $78.16 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $6.11 premium to WTI for the same month.
Yuan-denominated futures for September delivery slid 0.9 percent to 498.8 yuan a barrel on the Shanghai International Energy Exchange. The contract closed 0.4 percent higher on Tuesday, capping the longest run of daily gains since their debut in late March.
As well as declines in nationwide stockpiles, inventories in the key storage hub of Cushing, Oklahoma dropped by 2.6 million barrels, the API was said to report. If confirmed by U.S. government data Thursday, that would be the seventh consecutive decline. Nationwide stocks are forecast to have fallen by 5 million barrels, according to a Bloomberg survey.
Saudi Arabia said the country would “use its spare capacity when needed to deal with any future changes in oil supply and demand rates, in coordination with other producing countries,” according to a report in the Saudi Press Agency. Earlier, the kingdom and Russia’s energy ministers reiterated the agreement reached last month in Vienna, following President Trump’s tweet over the weekend that said he’d received assurances from the Middle Eastern nation that it could increase production by double that volume.