Oil Surges With Weaker Dollar Compounding U.S. Supply Draw

(Bloomberg) - Oil closed at an eight-month high on a weakening dollar and optimism over a surprising decline in US crude oil inventories and recent breakthroughs in a Covid-19 vaccine.
New York futures rose 1.8% on Wednesday after rallying the three previous sessions. A report from the Energy Information Administration showed that US crude oil inventories fell 754,000 barrels last week. At the same time, positive developments in a vaccine have rapidly reshaped the oil futures curve, with several key markers moving into a bullish backwardation structure in the past few days.
In addition, Chinese and Indian refineries launched numerous tenders to ship crude oil in January to highlight strong demand from parts of Asia. In the meantime, the Bloomberg Dollar Spot Index fell as much as 0.2%, making it more attractive for commodities priced in the currency.
“It was a really good run. We haven't seen a run like this since the spring after getting negative prices, ”said Peter McNally, Third Bridge's global director of industry, materials and energy. “The mood must have changed pretty quickly. Anything could take a breather at any point, but lately supply and demand fundamentals seem to be heading in the right direction. "
While optimism over vaccines has helped raise the US crude benchmark by more than 25% this month, OPEC + 's rapid rally is preparing again ahead of next week's meeting to assess the group's output strategy A headache. In the latest sign of widening divide within the cartel, the vice chairman of Iraq said OPEC should consider members' economic and political conditions when deciding on production quotas rather than adopting a "one-size-fits-all" approach.
Iraq expresses frustration with OPEC days before the crunch meeting
West Texas intermediate prices for 2021 on Wednesday were at their highest level since March, while prices for 2022 were at their highest level since September. The higher forward prices increase the incentive for oil producers to secure their supplies for years to come. Prices were also supported by renewed geopolitical tensions, with recent attacks on a terminal in the Saudi city of Jeddah and an oil tanker in the Red Sea.
Aside from the crude oil withdrawal heading, the EIA report showed a decrease in inventory at the country's largest storage hub in Cushing, Oklahoma, and the 10th consecutive withdrawal of distillate supplies. There were some declining data points, however: gasoline inventories rose over 2 million barrels and crude oil production rose.
"There could be additional weakness in petroleum products and higher inventory levels before a major recovery manifests itself," said Bart Melek, director of global commodities strategy at TD Securities, in a note. "Given this relatively high price level, this and the uncertainty on the production side of OPEC + suggest that crude oil has risen as high as possible for the time being."
In the meantime, the drawing of the distillate stocks has led to a recovery of the so-called diesel crack. Refining margin traded above $ 12 this week after falling below $ 10 a barrel earlier this year. Nevertheless, the crack remains seasonally weakest since 2009.
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