Oil’s rally in 2021 has hit a rocky patch after U.S. stockpiles rose and the International Energy Agency said supplies are plentiful.
West Texas Intermediate retreated for a fifth straight day, putting the U.S. benchmark on course for the longest losing run in more than a year. Brent also declined in London, with traders assessing global supply risks alongside a patchy recovery in consumption even as the coronavirus pandemic ebbs.
In a fresh blow, the market for physical barrels in Asia is showing signs of weakness, with muted buying from some in China. Spot differentials for cargoes set to be loaded in April or May from the Middle East and Russia -- which make up a large portion of the oil used by Asian refiners -- have dipped.
Oil prices have backtracked this week despite the surprise OPEC+ decision earlier this month to extend output cuts, and the vaccine breakthroughs that had underpinned a narrative of a tightening market. OPEC and its allies could quickly deploy spare capacity to quash rallies, the IEA said in a report, while adding that demand won’t return to pre-virus levels until 2023.
“Oil could trade in a range for the moment,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. While the rise in U.S. crude stockpiles probably soured near-term sentiment, “given the pace of global vaccination and economic recovery, we remain bullish on the energy complex,” said Lee.
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