Oil prices surged to multiyear highs for a second straight session Thursday as investors anticipate a tightening market with more declines in inventories due to robust global demand and production or export disruptions in various nations.
West Texas Intermediate futures rose 1% to close at $73.45 a barrel on the New York Mercantile Exchange, the highest close since November 2014. Brent crude, the global benchmark, rose 0.3% to $77.85.
The continued surge in prices Thursday was fueled largely by price-supportive data Wednesday from the Energy Information Administration, which said U.S. crude oil inventories fell by 9.9 million barrels last week to stand at 417 million barrels. That weekly drop far exceeded the 2.8 million-barrel decline forecast by analysts surveyed by The Wall Street Journal.
The inventory data “lent additional buoyancy” to the oil market, according to analysts at Commerzbank . “The key reason for this was record-high crude oil processing and a marked rise in U.S. crude oil exports,” the analysts wrote in a note Thursday.
The U.S. exported a record-smashing 21 million barrels of crude oil last week, or 3 million barrels daily, the EIA said, noting oil exports are averaging 1.8 million barrels a day this year, 140% more than this time last year. Enabling those huge exports has been a consistent $10 per barrel discount on U.S.-produced oil, whose benchmark is WTI, compared with the higher-priced global benchmark Brent. Such a huge difference in prices makes U.S.-produced oil an easy sell to oil importers overseas such as China, as price is the main factor.
But the 13% rally in U.S. oil prices over the past week and a half, from less than $65 a barrel to more than $73 a barrel, is causing that WTI discount to Brent to narrow significantly, to about $4. And since shipping costs alone from the U.S. Gulf Coast to Asia can run $3 a barrel or more, U.S. oil producers may find it difficult to maintain its record-setting export volumes, said Tom Kloza, global head of energy analysis at Oil Price Information Service.
“You have to think last week’s 3 million [barrel-a-day oil export] number isn’t a level that will be consistent,” Mr. Kloza said.
Still, he added that oil prices in the U.S. can vary by region, and the low prices for oil in west Texas’s Permian Basin, which are among the cheapest at about $15 a barrel less than Brent, suggest oil exports from Texas are “still doable.”
The bullish government data came on the heels of threats by the Trump administration earlier this week to sanction countries that don’t reduce their imports of Iranian crude to “zero” by Nov. 4.
President Donald Trump last month pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program, setting the stage for the reimposition of economic sanctions on the Islamic Republic that were already expected to hinder its roughly 2.4 million barrels a day of oil exports.
Stricter U.S. pressure on the Islamic Republic raised the prospect that Iranian oil flows could be further restricted than many market observers had initially anticipated, with concern over dwindling global supply helping to bolster the market.
The jump in crude prices comes less than a week after the Organization of the Petroleum Exporting Countries and partner producers including Russia agreed to start ramping up production after more than a year of holding back output.
The decision to pump more oil by as much as a million barrels a day from next month was meant to put a cap on rising prices, but has so far been largely ignored by the market.
“The bullish reaction to the [OPEC] decision to increase production is a clear indication of the impact of unintended supply outages,” including at a major oil plant in Canada, said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.
Gasoline futures were flat at $2.1329 a gallon, and diesel futures were up 0.1% at $2.1782 a gallon.
Source: The Wall Street Journal