By Barani Krishnan
Investing.com - Oil prices resumed their upward trajectory on Thursday as market bulls rejoiced over the latest upgrade to global demand estimates while casting aside a third straight weekly build in U.S. crude stocks.
Crude stockpiles rose by 6.09 million barrels in the week to October 8, following through with the 2.35-million and 4.58-million builds in the previous two weeks, the U.S. Information Administration said in its Weekly Petroleum Status Report.
The market’s attention was instead on the upgrade to global oil consumption forecasts by the Paris-based International Energy Agency.
The IEA said it expected world demand for oil to rise to 99.6 million barrels per day in 2022, up 3.3 million bpd from its previous estimate.
A lack of natural gas, LNG and coal could keep the oil market in deficit until at least the end of 2021, the agency added, concurring with popular estimates.
The global squeeze in energy supplies has thus forced a shift to oil, which might increase demand for crude by 500,000 bpd, it added.
Oil prices jumped on that and barely gave up ground when the U.S. inventory numbers were reported later.
By 2:00 PM ET (18:00 GMT), U.S. crude’s West Texas Intermediate benchmark was up 98 cents, or 1.2%, at $81.42 per barrel. WTI hit seven year-highs above $82 on Monday and has gained 68% this year from a combination of output cuts by the Organization of the Petroleum Exporting Countries and its allies, a 23-nation alliance known as OPEC+.
London-traded Brent crude, the global benchmark for oil, was at $84.03, up 85 cents, or 1%. Brent is up 62% on the year and rose to almost $85 on Monday.
“Given the prevailing market sentiment, it’s not surprising that the IEA projection got prioritized over the EIA numbers,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “It will probably have to take a lot more builds on the U.S. front to make a dent on the market’s bull psyche.”
Higher economic activity amid a sheer drop in global caseloads of coronavirus infections have helped oil consumption to spike in recent weeks as more motorists hit the road and governments loosened up activity curtailed for months by the pandemic.
That higher energy usage showed up in the weekly inventory dataset released by the EIA on Thursday.
Gasoline stockpiles fell by 1.96 million barrels last week versus forecasts for a build of 3.26 million while inventories of distillates slipped by 24,000 barrels against expectations for a 396,000-barrel decline.
Despite continuous drops in gasoline and distillate inventories, crude builds have been larger lately, probably because refining activity was lagging usual trends due to the higher WTI prices now, said Kilduff.
“This might surprise some people but crude refiners are also price-sensitive and WTI at seven-year highs aren’t exactly the levels many want to buy at,” said Kilduff, who noted that refinery runs for last week were at 86.7%, well below the 90% and above typical for this time of year.
On the flip side, Russia’s Deputy Prime Minister Alexander Novak said on Thursday that Moscow had no issues ramping its oil production to meet projected demand.
That could be in conflict with the latest decision by global oil producing cartel OPEC+ not to add beyond the monthly 400,000 bpd rise the group had agreed to.
OPEC+, interestingly, has Russia as the second biggest producer after Saudi Arabia. But Novak has not dissented with the alliance’s joint decisions over the past 18 months as producers worked to restore prices destroyed by the pandemic.