(updates with market settlements)
By Barani Krishnan
Investing.com - If you push hard enough you’ll get there, is the saying.
No truer words could have been spoken for oil longs whose $90-a-barrel aim was achieved Wednesday not just from their own pushing but also the relentless messaging of Wall Street banks that had been driving toward that target for months.
Brent oil scaled $90.07 per barrel, a level unseen previously since 2014, as the London-traded global crude benchmark added another 14% to its price after last year’s gain of 50%. Brent finished the session at $89.96/bbl, up $1.76, or 2%, on the day.
West Texas Intermediate, the benchmark for U.S. crude, settled up $1.75, or 2%, at $87.35 a barrel, after a session high at $87.94. WTI is up 16% on the year after a 2021 gain of around 50%.
“In markets, narratives are what matter at times, not necessarily hard data,” said John Kilduff, partner at New York energy hedge fund Again Capital. “The narrative in oil now is overwhelmingly skewed to the positive side, helped by geopolitical tensions and the impression of a severely undersupplied market — something that will only be proven months from now.”
Wednesday's run-up in oil came amid intense speculation that Russia will invade Ukraine despite Moscow’s repeated denials of such intent. This week, American troops were placed on “high alert” for possible deployment to Eastern Europe while NATO dispatched additional ships and fighter jets to the region, in anticipation that the Russia-Ukraine conflict will worsen.
Crude producers in the OPEC+ alliance, which includes Russia, also pumped less over the past month, reinforcing the theory of an undersupplied market.
U.S. gasoline stocks rose for a fourth week in a row but the huge inventory builds seen since end-December eased last week as refiners processed less crude into products amid faltering demand for fuel, data from the Energy Information Administration showed Wednesday.
Automobile fuel gasoline, also known as petrol outside the United States, is America’s most-consumed oil product. Gasoline stockpiles rose by 1.3 million barrels in the week ended January 21 versus market expectations for a build of 2.5 million barrels after the previous week’s growth of 5.9 million, EIA data showed.
While the latest week had shown a contraction, gasoline barrels as a whole have ballooned by a record of nearly 25 million since the end of December, as Americans began driving less with the onset of winter.
The EIA data also showed crude stockpiles rising for a second week in a row as refiners processed less oil into gasoline. Crude inventories grew by 2.4 million barrels last week versus a 728,000-barrel decline forecast by the market, adding to the previous week’s gain of 515,000 barrels.
The rally in crude has created a dichotomy with the oversupplied state of fuels in the United States, the world’s largest oil consumer. Wall Street banks have also ignored this element, focusing on the geopolitical tensions in Eastern Europe and OPEC+ supply tightness.
One positive inventory number for last week was, however, the distillates drawdown of 2.8 million, which exceeded market expectations for a decline of 1.3 million and added to the previous week’s draw of 1.4 million. Distillates are refined into diesel for trucks, buses, trains and ships as well as fuel for jets.
Oil longs’ next target for crude is $100 a barrel, also a level unseen since 2014.
“Before turning bearish on oil, we need to see a major technical reversal sign, ideally around that $90 handle,” said Fawad Razaqzada, analyst at London’s Think Markets. “So far, prices are continuing to make higher highs and higher lows.”
(Additional reporting by Sam Boughedda)