Oil jumped above US$46 a barrel amid a weakening dollar and optimism surrounding a surprise decline in U.S. crude supplies and recent breakthroughs on a COVID-19 vaccine.

Futures in New York advanced as much as 2.9 per cent on Wednesday, extending Tuesday’s rally to an eight-month high. An Energy Information Administration report showed U.S. crude stockpiles fell 754,000 barrels last week and distillate inventories decreased for a tenth straight week.

Positive developments on a vaccine have spurred a swift reshaping of oil’s futures curve, with several key markers moving into a bullish backwardation structure in recent days. In addition, Chinese and Indian refiners issued a flurry of tenders seeking crude oil for loading in January, highlighting the strong demand coming from parts of Asia.

Meanwhile, the Bloomberg Dollar Spot Index fell as much as 0.2 per cent, boosting the appeal for commodities priced in the currency.

“It has been a really good run. We haven’t seen a run like this since the spring after we went to negative prices,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “Sentiment certainly has changed pretty quickly. At any point, it all could take a breather, but lately it feels like supply and demand fundamentals are heading in the right direction.”

While optimism over vaccines has helped the U.S. crude benchmark rise nearly 30 per cent so far this month, the swift runup poses yet another headache for OPEC+ ahead of next week’s meeting to evaluate the group’s output strategy. In the latest sign of growing rifts within the cartel, Iraq’s deputy leader said this week that OPEC should take members’ economic and political conditions into account when deciding production quotas rather than adopting a “one-size-fits-all” approach.

Wednesday’s EIA report also had its share of bearish data points, with gasoline stockpiles rose over two million barrels last week and crude production ticked higher.

Still, along with the firming structure of the oil futures curve, prices further out have also been moving higher. WTI prices for 2021 were at their strongest level since March early on Wednesday, while those for 2022 topped US$45 to reach their highest since September. The higher forward prices are boosting the incentive for oil producers to lock in their supplies for the coming years. Prices have also been supported by renewed geopolitical tensions, with recent attacks on a fuel depot in the Saudi city of Jeddah and on an oil tanker in the Red Sea.

“There could still be additional petroleum product weakness and higher inventories, before a material rebound manifests,” Bart Melek, head of global commodity strategy at TD Securities, said in a note. “This combined with uncertainty on the OPEC+ production side, given these relative high price levels, suggests that crude has gone as high as it can for now.”

Prices

• West Texas Intermediate for January delivery rose US$1.17 to US$46.08 a barrel as of 1:13 p.m. in New York
• Brent advanced US$1.04 to US$48.90 a barrel

Aside from the headline crude draw, a decline in inventories at the national storage hub in Cushing, Oklahoma, provided another reason for relief. Stockpiles at Cushing have recently been approaching levels last seen in May following WTI’s journey below zero.

“There has been some talk about tank tops, but it’s not as dire as it was in the spring,” Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly US$8 billion in energy-related assets. “It’s more about slow, but improving recovery in economic activity and therefore demand for refined products.”

Meanwhile, the streak of draws in distillate inventories have led a recovery in the so-called diesel crack. The refining margin has been trading above US$12 a barrel recently after plunging below US$10 a barrel earlier this year. Still, the crack remains at its lowest seasonally since 2009.

Other oil-market news:

• Nigeria’s efforts to revamp its aging refineries may be bogged down amid a lack of resources, but Africa’s top oil producer is moving ahead with mini-plants in an effort to help end its dependency on fuel imports.
• Russia is to keep oil flows from its western ports sharply curtailed for an eighth consecutive month in December, according to loading programs seen by Bloomberg.