Oil advanced to a new one-year high as the market looks ahead toward an accelerating decline in global inventories and a comeback in demand.

Futures in New York were up as much as 2.8 per cent Wednesday, rising to the highest intraday since January 2020. Energy Information Administration data showed crude output fell to 9.7 million barrels a day last week amid an unprecedented polar blast, tying for the low reached last summer when Hurricane Laura sent production plummeting.

Globally, supplies are declining with stockpiles at a major European storage hub falling to their lowest level since September. Key players in the oil market have been talking up the rising prices in the coming months, with some even floating the prospect of US$100 crude in the next year or two as the global economy recovers from the pandemic.

“All indications are that we’re going to see better demand,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly US$8 billion in energy-related assets. “Inventories are going to continue to fall, both in the U.S. and globally. Big picture, that’s going to be positive for prices moving higher.”

The report also showed crude inventories rose by 1.29 million barrels last week as the cold weather shut most Texas refineries. Despite the U.S. build, confidence a meaningful demand rebound will accompany widening vaccination availability by this summer has supported prices. The underlying market structure for global benchmark Brent futures remains in backwardation, where nearer contracts trade at a premium to following months, indicating tightening supplies as OPEC+ maintains production curbs.

Market movements in the coming weeks are likely to be driven by the legacy of the U.S. cold weather, an upcoming OPEC+ meeting and the ongoing reflation trade across global markets. U.S. equity markets also rose on Wednesday as Federal Reserve Chairman Jerome Powell said the country’s economy still had a long way to go to reach the Fed’s inflation target, a signal he wants to remain accommodative.

The market “has OPEC helping out and out of nowhere had this once in a generation storm” in the U.S., said Bob Yawger, head of the futures division at Mizuho Securities. Meanwhile, “Powell’s testimony indicating they’re full steam ahead has cleared the way for higher prices.”

Prices

• West Texas Intermediate for April delivery rose US$1.49 to US$63.16 a barrel as of 12:01 p.m. in New York
• Brent for April settlement climbed US$1.75 to US$67.12 a barrel

U.S. drillers in the Permian Basin have already restored about 80 per cent of crude output after the big freeze, although refiners are finding a return to normal more tricky. Impacts from the cold blast have also hit Asia, where plastic makers are facing surging prices for key feedstocks after American processors were shuttered.

The EIA report also showed distillate inventories fell by roughly 5 million barrels last week, helping lead a decline in total petroleum stockpiles. Meanwhile, U.S. crude imports fell to 4.6 million barrels a day, the lowest since February 1996.

Other oil-market news:

• Cars and planes are closer to burning year-ago levels of fuel in the Americas than they are in many parts of Europe, with China leapfrogging both regions now that its Lunar New Year holiday is over.
• The decline in Occidental Petroleum Corp.’s oil production in the Permian Basin has left the company with so much unused capacity on pipelines to the Gulf Coast that the problem will drive a midstream loss of as much as US$750 million this year.
• Exxon Mobil Corp. agreed to sell some of its assets in the North Sea for more than US$1 billion as the company focuses on newer and larger sources of oil and gas such as Guyana, Brazil and the U.S. Permian Basin.
• U.S. President Joe Biden’s decision to cancel the Keystone XL pipeline is sparking renewed interest in shipping Canadian oil-sands by rail, and that comes with its own environmental risks.