(Bloomberg) -- Oil extended gains toward $42 a barrel in New York after an industry reported pointed to a bigger-than-expected decline in U.S. crude stockpiles, adding to bullish momentum after a vaccine breakthrough.
The American Petroleum Institute reported crude inventories dropped by 5.15 million barrels last week, with gasoline and diesel stockpiles also decreasing, according to people familiar with the data. Official government figures are due Thursday. While early findings on a vaccine showed it protected most people from Covid-19, it’s likely to take some time to roll out if it proves effective.
Oil has rallied more than 11% over the past two days, buoyed initially by the election of Joe Biden as U.S. president and followed by a broader market surge on the coronavirus vaccine news from Pfizer Inc (NYSE:PFE) and BioNTech SE (NASDAQ:BNTX). The next major event for the oil market is the OPEC+ meeting at the end of the month, with the group set to decide on whether to delay a planned easing of cuts.
“Once we get the Covid vaccine spread across the globe and it does work as Pfizer has suggested, then we would expect to see more normal demand coming through for oil and with that higher prices,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “But there’s still a way to go before all that does happen.”
Brent’s three-month timespread was 85 cents a barrel in contango on Tuesday -- where prompt prices are cheaper than later-dated ones. That’s the smallest contango since July, signaling concerns about over-supply have eased.
U.S. gasoline stockpiles dropped by 3.3 million barrels last week, while distillate inventories, which includes diesel, shrank by 5.62 million barrels, the API reported Tuesday. The median estimate in a Bloomberg survey forecast nationwide crude stockpiles fell by 1.9 million barrels.
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Oil demand should recover to pre-pandemic levels by the northern hemisphere’s fall season next year, according to Vitol Group Chief Executive Officer Russell Hardy. He predicted 100 million barrels would emerge from storage over the next five months if OPEC and its allies hold off on planned production increases.
However, there are reasons to be wary of the latest price surge. Goldman Sachs Group Inc (NYSE:GS). said fresh virus outbreaks will present a speed bump to the oil market before further tightening. BMO analysts, meanwhile, said it is “too soon” for $50 oil prices as the market contends with supply headwinds such as returning Libyan output.
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