Oil Rally Gets Fresh Impetus From Shrinking Stockpiles at US Hub

Oil was propelled closer to the $100-a-barrel mark after stockpiles at a major US storage hub dropped to critical levels, highlighting a widening global deficit.

(Bloomberg) — Oil was propelled closer to the $100-a-barrel mark after stockpiles at a major US storage hub dropped to critical levels, highlighting a widening global deficit.

West Texas Intermediate briefly popped above $95 a barrel for the first time in more than a year after jumping 3.6% on Wednesday, its biggest gain since early May. Inventories at Cushing, Oklahoma — the delivery point for the US benchmark — dropped just below 22 million barrels, the lowest since July 2022 and close to operational minimums.

“It really all boils down to concerns over supply tightness continuing and even exacerbating going into the northern hemisphere winter months,” Vandana Hari, founder of consultancy Vanda Insights, said on Bloomberg TV. “You have a market which is very tightly strung right now, almost on the verge of panic.”

Overall US crude stockpiles fell more than expected, according to official data released Wednesday, providing evidence of how rapidly the market is tightening due to supply cuts from Saudi Arabia and Russia. WTI has jumped by around a third since the end of June, and is on track for the biggest quarterly gain since June 2020, fueling inflation and causing headaches for central banks. 

Earlier this month, OPEC forecast a deficit of as much as 3 million barrels a day of crude in the fourth quarter. With demand in the US and China proving resilient, many in the market now see $100 oil as inevitable, even as the dollar rallies and worries about high global interest rates persist. 

“It’s only a matter of time before Brent breaks $100 a barrel,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, we believe any breakout will be relatively short-lived, given the growing pressure that will likely be put on OPEC+ to ease supply cuts.” 

The physical tightness is being reflected in oil’s futures curve. WTI’s prompt spread has surged to $2.57 a barrel in the bullish backwardation structure from just 61 cents in the middle of last week. Options trading is also showing concerns about bigger price swings.

Stockpiles at Cushing have dropped for seven straight weeks and many traders consider them to already be at the lowest levels that allow the tanks to operate normally. Last-minute supplies from the hub are becoming increasingly expensive and American crude is getting too pricey for overseas buyers. 

Nevertheless, demand appears to be holding up despite the higher prices. Global consumption of transport fuels picked up last week, lifted by Chinese trucking activity and an increase in international travel ahead of the Golden Week holiday, JPMorgan Chase & Co. said in a note.

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