Oil price rises as US industry group reports inventory draw

Crude inventories in the US fell 4.79 million barrels last week – the largest withdrawal since October

Oil prices held steady despite a setback to the latest US stimulus package. Republican Senator and majority leader, Mitch McConnell blocked a vote to increase stimulus checks to $2000. AFP

Oil prices are poised to end 2020 on a positive note as Brent, the international benchmark, surged above $51 per barrel as a US industry group reported a larger-than-expected inventory withdrawal.

Brent was up 0.57 per cent, trading at $51.38 per barrel at 1.31pm UAE time, while West Texas Intermediate, the US gauge, was up 0.62 per cent, trading at $48.30 per barrel.

The benchmarks remained elevated as the industry-funded American Petroleum Institute reported the biggest withdrawal in oil stocks since October. Crude inventories in the US fell by 4.79 million barrels last week. The US Energy Information Administration is due to confirm inventory levels today, with Bloomberg expecting a drop of 3.1 million barrels.

Brent has remained above $50 per barrel, in spite of a rising number of number of Covid-19 infections in the UK and Germany. A new virus variant with 70 per cent transmissibility has caused concerns, with countries imposing travel restrictions and stricter lockdown measures.

The new mobility restrictions are being offset by "by investors still looking to rotate into cyclical commodities such as oil," said Giovanni Staunovo, commodity analyst at UBS.

"Such investors are looking for assets they consider cheap in a post-Covid-19 world. A slightly downward sloping futures curve in Brent crude oil is helping, as investors who are long Brent don't have to bear roll costs at present," he added.

Oil prices held steady despite a setback to the latest US stimulus package. Republican Senator and majority leader Mitch McConnell blocked a vote to increase stimulus checks to $2,000 on Tuesday. Mr McConnell suggested a "process" should be put in place to consider larger payments.

"The market to a great degree is still surfing on the stimulus, surfing on vaccine optimism, but I think the latest stimulus efforts from the US are going to help quite a bit," said Stephen Innes, chief market strategist at Axi.

"That's going to provide a high degree of growth revisions in Q1 in the US," he added.

Stimulus cheques are also likely to incentivise consumption in the US, with  a "good portion" of the payments likely to go towards buying oil-related products, said Mr Innes.

"Lots of people in the States drive and people that are unemployed, a lot of them own cars, so I'm assuming that that could be a really decent pick-up for oil."

Axi expects Brent to reach $60 per barrel towards the second quarter, as markets continue to price in inoculation efforts around the world.

Demand in Asia is also picking up "slowly but steadily", JBC Energy said in a note on Wednesday.

Crude intake in Japan reached a seven-month high in November, due to a seasonal uptick in heating demand.

Oil prices are at nine-month highs just ahead of a monthly meeting of Opec+ producers. The group, led by Saudi Arabia and Russia, will begin pumping an additional 500,000 barrels per day for three months beginning January.

The group came to an historic agreement to cut 9.7m bpd in April to counter a record drop in demand due to Covid-19 related travel restrictions. Opec+ has since pared back its level of curbs and will draw 7.7m bpd from the markets from January. The group will hold an online meeting on January 4 to discuss current compliance levels and deliberate mechanisms for compensatory cuts by producers.