Brent crude, the global benchmark, jumped to a peak of $112.48 a barrel, the highest since last Thursday, when the International Energy Agency announced its members would sell 60m barrels of oil, the third co-ordinated sale from the reserves in the organisation’s history.
Amid heavy selling in the days that followed the IEA’s move, Brent traded as low as $102.28. Since that level was reached on Monday, however, prices have rallied 10 per cent, or just over $10 a barrel.
A reappraisal of the impact of the IEA’s intervention triggered the reversal. Traders have shifted their focus to an expected oil supply squeeze in the next few years instead of the prospect of an additional 2m barrels a day of oil for a month.
“The reality remains that the current market is still grappling with a structural change that has effectively resulted in the gain of some five years of oil demand in one year,” said Amrita Sen, oil analyst at Barclays Capital.
The IEA’s action could exacerbate the longer-term supply squeeze if it succeeded in suppressing prices in the short term, Ms Sen argued.
“Emerging market economies are often criticised for not allowing their consumers to face the true price of oil through heavy subsidies, thereby keeping demand inflated. We fear the IEA has done exactly the same [in the rich countries],” she said.
Adding further fuel to the rally on Wednesday were positive numbers on US oil demand.
Crude oil inventories in the US, the world’s largest oil consumer, fell 4.4m barrels last week, according to the US Department of Energy. Gasoline stocks were also drawn down by 1.4m barrels.
While the data indicated total demand declined by 330,000 b/d from a year earlier, the drop was the smallest since early May, according to Michael Wittner, head of oil research at Société Générale.
The market is also concerned that Opec countries may decide to scale back previous plans to lift production in an attempt to keep the market tight and prices high.
However, the IEA said last week that Saudi Arabian supply could reach 9.5m b/d this month, the highest in six years and approaching a 30-year high reached in 2004 when the kingdom boosted production to offset losses triggered by the war in Iraq.
The return of more bullish sentiment to the oil markets helped spur a recovery in differentials between different types of crude oil, which had collapsed in the wake of the IEA announcement.
The difference between high quality Brent and lower quality Dubai crudes rebounded to $4.85 a barrel from a low of $3.30 on Monday. Moreover, the discount for Brent for delivery in August relative to longer-dated contracts narrowed sharply.
“With European refining margins recovering very strongly during the last few days, it’s likely the Brent structure will strengthen again as refiners are enticed back to the market to buy crude,” said James Zhang, oil analyst at Standard Bank. For the latest updates PRESS CTR + D or visit Stock Market news Today
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