Oil rises for a fifth day as US crude inventories drop

The current rise in oil prices to near $50 per barrel mark represents the longest run of gains in six months

FILE PHOTO: A pump jack operates in front of a drilling rig at sunset in an oil field in Midland, Texas U.S. August 22, 2018.  REUTERS/Nick Oxford/File Photo
Powered by automated translation

Oil rose for a fifth straight day nearing $50 per barrel mark, driven by a surprise drop in US crude inventories and optimism on recent breakthroughs in Covid-19 vaccines development.

Brent, the global benchmark for two-thirds of the world's oil, jumped 1.57 per cent to $48.61 per barrel at 9.43am UAE time on Thursday, whereas US crude gauge West Texas Intermediate rose 0.59 per cent to $45.98 per barrel.

“The upward momentum from the positive vaccine news in recent weeks was bolstered by oil market fundamentals yesterday, as EIA [Energy Information Administration] data showed that the US oil inventories declined by 754,000 barrels last week, confounding expectations that they would rise,” Daniel Richards, a Mena economist at Emirates NBD, said in a note.

The current rally in oil prices represents the longest run of gains in six months, he added.

Global pharmaceutical companies including Pfizer, Moderna and AstraZeneca have achieved major breakthroughs in developing a vaccine for the treatment of coronavirus in recent weeks. Vaccine candidates being tested by Pfizer and Moderna have shown more than 90 per cent efficacy.

The development of a vaccine is expected to boost fuel demand as it will encourage governments to ease coronavirus-related restrictions to restart businesses and other activities.

“The announcement by pharma companies about progress in vaccine development has further helped to ... extend the rally,” Avtar Sandu, senior manager of commodities at Singapore-based Phillip Futures, said.

Crude prices also received a boost from limited crude supplies from Nigeria, the largest crude producer in Africa, after Eni on Tuesday declared force majeure on Brass river crude exports from Nigeria following a pipeline explosion.

Next week, Opec and its oil-producing allies will hold their ordinary ministerial meetings. Opec members who will meet on Monday and Tuesday, will later be joined by nearly a dozen non-Opec allies including Russia in virtual discussions for the 12th Opec+ meeting.

Under the terms of the alliance’s current output-cut deal, the group is scheduled to increase production by nearly 2 million bpd at the start of 2021.

However, analysts expect the group to delay this increase by at least three months for reasons including mobility restrictions across Europe and in some US states denting demand in the fourth quarter of this year, as well as higher Libyan oil production.

Giovanni Staunovo, a commodities analyst at UBS, however sees oil prices rallying to $60 per barrel by the end of next year. He expects the oil market to largely "stay undersupplied in 2021" and maintains the lender's "bullish outlook" for next year.

Oil prices also rose earlier this week after Saudi Arabia's energy ministry confirmed an attack on a petroleum distribution terminal located north of the coastal city of Jeddah.