Oil extends longest rally in 2 years with US supplies dropping

Oil futures rose for an eighth straight day in New York as a decline in US crude inventories further highlighted depleting global supplies.

The rally of about 0.6% extended the longest streak of daily gains since February 2019. A US government report showed domestic oil stockpiles fell by 6.6 million barrels to the lowest since March, though the data also pointed to gasoline supplies rising to the highest since June.

Underpinning crude’s rally, the spread between Brent’s nearest contracts has surged this week in another sign of tightening supplies amid OPEC+ production curbs. Citigroup expects Brent crude to reach $70 a barrel by the end of the year, with the producer group’s output agreement helping erode inventories and demand looking stronger than expected.

“It was good to see the crude draw wasn’t just from one area, but constructive that it was throughout the whole US," said Brian Kessens, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “If there was one thing to be concerned about, it was that gasoline inventories built."

Oil has climbed more than 12% so far this month as the OPEC+ alliance’s supply curbs, led by Saudi Arabia, help deplete an oil surplus left in the wake of a pandemic-driven demand slump. Iraq said OPEC+ will likely agree to keep output steady in April, though Saudi Arabia will probably end unilateral daily cuts after March.

“There’s support underneath the market with the cuts that Saudi Arabia has done," said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “But it really all comes down to the vaccine, how it gets rolled out and when we get back to any kind of normality."

There are still concerns that the rally may be overdone, with technical indicators showing crude in overbought territory. Rising prices may also spur American oil explorers to boost drilling and production later this year, the Energy Information Administration said in a monthly report Tuesday.

Meanwhile, the combined refining margin for gasoline and diesel fell toward $12 a barrel on Wednesday as the EIA report showed a nearly 4.3 million-barrel increase in gasoline supplies. At the same time, a rolling gauge for gasoline demand remains at its lowest seasonally in decades.