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OIL FUTURES: Price rally extends as supply outlooks tighten following US crude draw

Highlights

US crude stocks fall 8 million barrels

RBOB cracks weaken as US gasoline stocks climb

US dollar slide extends

New York — Oil futures settled higher Nov. 4 as the market eyed tightened supply outlooks following a US inventory draw and the possibility of extended OPEC+ production cuts.

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NYMEX December WTI climbed $1.49 to settle at $39.15/b and ICE January Brent was up $1.52 at $41.23/b.

US commercial crude stocks moved 8 million barrels lower in the week ended Oct. 30 to 484.43 million barrels, US Energy Information Administration data showed Nov. 4. The draw puts inventories at the lowest since the week ended April 3 and leaves them just 6.8% above the five-year average for this time of year, marking the narrowest surplus since early April.

The US crude draw was the largest weekly downturn since late August, and added to a tightening supply narrative that has been supportive of markets in recent days.

The market is increasingly pricing in the prospects that the OEPC+ group will approve an at least three-month extensions of their current levels of production cuts through March 2021.

OPEC, Russia, and other key partners in a supply accord are scheduled to taper their collective 7.8 million b/d production cuts by more than one-quarter to 5.8 million b/d from January, having banked on a robust rebound in oil demand from the coronavirus pandemic in the second half of the year. But a rising global caseload and the return of broad lockdowns across Europe have put these assumptions in doubt, producing a consensus within the alliance that the increase in production needs to be delayed, delegates told S&P Global Platts on Nov. 3.

NYMEX December RBOB settled 3.01 cents higher at $1.1462/gal and December ULSD climbed 3.66 cents to $1.2977/gal.

Total gasoline inventories climbed 1.54 million barrels to 227.67 million barrels, EIA said, putting them more than 4% above the five-year average - the largest surplus since mid-August. The build comes as gasoline demand continued to trend downward, with the four-week moving average falling to 8.44 million b/d - the lowest since the week ended June 26 and more than 10% behind year-ago levels.

The front-month ICE New York Harbor RBO crack against Brent pulled back around 4 cents in afternoon trading to $5.06/b, on pace to close just off two-month low of $5/b seen Nov. 2.

The outcome of the US presidential election had yet to be determined late Nov. 4 as mail-in ballots continued to be counted. The future of US energy and climate policy hangs on the races for president and several tightly contested US Senate seats.

In the longer term, a Donald Trump victory could be supportive for oil prices, analysts said.

"A Trump win is bullish for oil prices as he will prevent Iranian oil from returning to the market in 2022 with continued sanctions. This also means it is less risky for OPEC+ to make more production cuts without the concern they will be undermined by this supply," SEB Bank's Chief Commodities Analyst, Bjarne Schieldrop, said.

But a Biden presidency is expected to be more supportive of stimulus spending, fostering faster economic growth and a weaker dollar, according to S&P Global Platts Analytics -- both bullish for oil prices. However, with Republicans likely to retain control of the Senate, the administration's ability to pass a stimulus bill may be curtailed. Also, longer term, Biden would embrace a shift to clean energy through climate policy, tougher environmental regulations and restrictions on federal oil and gas permitting.

ICE US Dollar Index futures were holding at around 93.4 late Nov. 4, down from a five-week high 94.15 on Nov. 2.