Crude oil pushes above $52 a barrel

Oil prices set fresh highs for 2016, rising to more than $52 on Wednesday as traders watched bloated inventories begin to fall.

Brent crude climbed as much as 2.1 per cent to touch $52.54, the highest price since last October. The US oil benchmark, West Texas Intermediate, climbed nearly 2 per cent to $51.34 a barrel, its highest intraday price since last July.

Oil has almost doubled from wintertime lows on news of unplanned supply interruptions, a slow decline in output from US shale formations, and robust consumption from drivers enjoying cheap prices at the forecourt.

The US government reported domestic crude oil stocks shrank by 3.2m barrels last week, a third consecutive drop and half a million more than the amount forecast by analysts. The decline came as refiners processed more oil and importers delivered less.

“I think we’re going to see steady draws of three or four million a week as the summer unfolds,” said Andy Lebow of Commodity Research Group, a consultancy.

However, total US petroleum stocks increased by the same amount as crude decreased due to rises in petrol, diesel, jet fuel and other oils, the Energy Information Administration said. At nearly 1.4bn barrels, they remain about 25 per cent higher than two years ago, when oversupply from US shale regions dragged prices below $100 a barrel.

Spencer Dale, chief economist at BP, said that while the oil glut may move into balance in the second half of 2016, “don’t be fooled by this. That’s not the problem solved. It’s that the problem stops getting worse, because we’ve got a massive build-up of stocks and you’ll need to see that overhang of stocks unwound before the market gets back close to anything normal”.

Key factors that may fuel or stall crude’s rally

Estimated US petrol demand also declined last week, which included the traffic-choked Memorial day weekend, though at 9.6m barrels a day it remained robust.

Unplanned supply outages last month averaged about 3.7m b/d, including about 800,000 b/d lost due to militant attacks on oil infrastructure in Nigeria and a similar amount because of wildfires in the oil sands of Canada, the US energy department said in a monthly report.

US shares rallied earlier in the day with oil prices, reprising a link between the two that characterised the early part of 2016 when they sold off in lockstep. However, the S&P 500 energy sector was lower at midday as gains faded.

JJ Kinahan, chief strategist at TD Ameritrade, said: “Even though the correlation isn’t what it was at the beginning of the year, there is still a strong correlation with crude and the S&P 500.”