Oil extended gains after closing at the highest level in more than a year as a slump in U.S. crude production following the cold blast and shrinking European stockpiles tightened the market further.
Futures in New York rose toward $64 a barrel after adding 2.5% on Wednesday the 24th of February,2021. U.S. crude output slid below 10 million barrels a day last week during the big freeze, matching a low reached last summer following outages caused by Hurricane Laura. Stockpiles continue to shrink globally with inventories at a major European storage hub falling to the lowest since September.
The prompt timespread for U.S. crude futures has also flipped back into a bullish backwardation structure and firmed after sliding into contango last week amid the cold snap. Some in the market are even talking about global benchmark Brent hitting $100 a barrel again in the longer term.
Oil is set for a fourth monthly gain after a pledge by Saudi Arabia to deepen output cuts accelerated a rally triggered by Covid-19 vaccine breakthroughs. While there’s been a raft of bullish calls on the outlook recently, the market is facing a possible supply increase in April from OPEC+, which meets next week to discuss its strategy with key members again differing on the way forward.
“Crude feels distinctly frothy at current levels,” said Vandana Hari, founder of Vanda Insights in Singapore. Saudi Arabia and other OPEC+ members could start returning more oil supply to the market in April and that “may finally dampen the relentless rally we’ve seen,” she added.
Shale explorers reported almost 6 million barrels of combined oil-output losses during the freeze last week.
U.S. crude stockpiles, however, expanded by 1.29 million barrels last week after freezing temperatures shut most Texas refineries, according to data released Wednesday from the Energy Information Administration. Inventories at the key storage hub of Cushing also rose for the first time in seven weeks.