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Oil Prices Hits March Highs on Vaccine Hopes, Defying Gasoline Stock Spike

Crude stockpiles in the United States fell by almost 800,000 barrels last week, confounding analysts expectations for a build and sending benchmark U.S. oil to $45 highs last seen in March before the market upheavals caused by the coronavirus pandemic.

Inventories of crude for the week ended Nov. 20 slid by 754,000 barrels, compared to the build of 127,000 barrels projected by analysts, weekly data issued by the Energy Information Administration showed. The decline almost negated the stockpile rise of 768,000 barrels in the prior week.

While crude inventories fell, gasoline stockpiles rose by 2.18 million barrels, more than thrice the expected build of 614,000 barrels. It was a second straight week that the market had got its reading on gasoline wrong, after the previous week’s rise of 2.6 million against a projected decline of 2.3 million.

Gasoline is the foremost indicator of fuel demand in the United States. Flagging numbers for this oil component over the past two weeks are proof of the seasonal demand decline at this time of the year, right after the end of the peak U.S. summer driving period. It’s also testimony of the continued weight of the Covid-19 pandemic on the economy, especially with the burst of new infections, hospitalizations and deaths since the start of November.

The bearish streak in gasoline demand, however, did not stop West Texas Intermediate crude, the benchmark for U.S. oil, from reaching 8-month highs.

WTI’s front-month settled up 80 cents, or 1.8%, at $45.71 per barrel. It earlier reached an intraday peak of $45.74, a level previously seen on March 5, right before the economic collapse brought on by the COVID-19 sent WTI to minus $40 per barrel at one point.

WTI aside, London-traded Brent, the global benchmark for crude, settled up 67 cents, or 1.4%, at $48.53. Brent earlier reached $48.91, also its highest since March.

Oil prices have been on a tear lately, with WTI and Brent both rising about $11 per barrel, or nearly 30%, over the past five weeks. The rally has come on the back of promising coronavirus vaccine trials, even as a rash of new COVID-19 infections are reported across a nation with 12.6 million positive cases since January and almost 260,000 fatalities related to that. US COVID-19 hospitalizations have hit daily record highs of above 100,000 in recent weeks, with New York reporting 5,000 cases on Wednesday, the first such statistic since April.

“It seems energy traders are riding coronavirus vaccine headlines that are forcing everyone to raise their crude demand outlook forecasts for 2021,” despite a wrath of U.S. data that suggests that fourth quarter GDP could see a return to contraction, said Ed Moya, analyst at New York’s OANDA. “Commodity prices should benefit from a weaker dollar since this wave of U.S data supports the notion that the Fed will do more and eventually Congress too.”

Wednesday’s run-up in crude prices also seemed underpinned by another inventory data that had been improving of late: diesel, which powers the trucks that form the backbone of the country’s delivery system that had become all the more important due to the century’s worst pandemic ever.

Stockpiles of diesel-led distillates fell by 1.4 million barrels after a 5.2 million decline the previous week, EIA data showed.

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Nov 26, 2020