Oil drops as market expected to tighten
Oil slipped after closing at the highest level since October 2018 with an industry report that indicates a further draw in the US crude inventories, highlighting an increasingly tightening global market.
Futures in New York inched up 1.6% on Tuesday, trading at nearly $75 a barrel. The American Petroleum Institute (API) revealed that crude inventories plummeted by more than 4 million barrels in the previous week, according to people familiar with the data. If confirmed by government figures, this would be an eight straight weekly draw, the longest run of declines since January 2018.
The International Energy Agency cautions that the oil market will further tighten if the Organization of Petroleum Exporting Countries and allies (OPEC+) fails to work through the Saudi-UAE standoff and increase production. The group failed to reach a deal in the previous week and it is becoming more likely that an output increase would not happen in August as the OPEC+ members lock in supply volumes to customers in the coming month.
The OPEC+ stalemate, coupled with the resurgence of COVID-19 cases due to the new variant, has cast uncertainty over the short-term outlook in the past week.
Despite easing down, the market managed to hold on to its bullish stance. The prompt timespread for Brent was 79 cents a barrel in backwardation, compared to the previous week’s 88 cents.
In related news, US gasoline stockpiles dropped by 1.54 million barrels in the previous week, while distillate inventories went up by 3.7 million barrels, according to the API.