Oil futures jumped Wednesday, adding to the week’s gains on optimism that the prospect of COVID-19 vaccine will support an economic recovery, along with industry data that showed a large drop in U.S. crude inventories.
West Texas Intermediate crude for December delivery CL.1, +2.17% rose 96 cents, or 2.3%, to $42.32 a barrel on the New York Mercantile Exchange, while January Brent crude BRN00, +2.20%, the global benchmark, advanced $1.10, or 2.5%, to $44.71 a barrel on ICE Futures Europe.
WTI is up more than 14% so far this week, while Brent has rallied more than 13% in a rally sparked by the announcement early Monday by Pfizer Inc. PFE, -1.32% and Germany-based BioNTech SE BNTX, +7.59% that their COVID-19 vaccine candidate proved more than 90% effective in preventing new infections in a trial. The vaccine remains weeks away from potential approval and it would likely be months yet before widespread distribution, but the prospect of light at the end of the tunnel has sparked big moves across markets.
The path of least resistance for crude is to the upside, as Brent crude broke through several important levels, said Fawad Razaqzada, analyst at ThinkMarkets, in a note. “So expect dips back to support to be defended,” he said, referring to the chart below.
Brent crude broke above a bearish trend line in place since early summer, as well as resistance in the $43.40-to-$44 range, an area that is now the “first support zone” for bulls to defend, Razaqzada said. A fall through that area could see Brent test the upper end of a broken trend line around $41.50. On the upside, the $46.50 area is the next upside target for the bulls, followed by the psychologically important $50 level, he said.
The American Petroleum Institute, an industry trade group, reported late Tuesday that U.S. crude supplies declined by 5.1 million barrels for the week ended Nov. 6, according to sources. The data also reportedly showed gasoline stockpiles down by 3.3 million barrels, while distillate inventories fell by 5.6 million barrels. Crude stocks at the Cushing, Okla. storage hub, meanwhile, edged down by 1.2 million barrels for the week, sources said.
More closely followed inventory data from the Energy Information Administration will be released Thursday, a day later than usual due to Wednesday’s Veterans Day holiday. The EIA data are expected to show crude inventories down by 3 million barrels last week, according to analysts polled by S&P Global Platts. They also forecast supply declines of 600,000 barrels for gasoline and 2 million barrels in distillates.