Oil Hits a Three-Month High as Stockpiles Are Tightened by the Cold Snap

As a result of a tighter global market and another decline in US crude stocks brought on by the bitterly cold winter, oil prices surged to a three-month high.

(Bloomberg) -- As a result of a tighter global market and another decline in US crude stocks brought on by the bitterly cold winter, oil prices surged to a three-month high.

For the first time since mid-October, Brent futures surpassed $78 a barrel, rising as much as 2.3%. According to official data released on Wednesday, crude stockpiles at the U.S. storage hub in Cushing, Oklahoma, have fallen to their lowest level since 2014.

Given the recent strain on flows from Russia and Iran to Asia, traders are also leery of additional restrictions on important exporters. Tighter fundamentals are also indicated by market measures.

In a positive trend, Brent's prompt spread, or the difference between its two closest contracts, has expanded to 78 cents per barrel. The premium was 29 cents a month ago.

Tamas Varga, an analyst with London-based traders PVM Oil Associates Ltd., stated that all one needs to do to evaluate the current status of the oil market is to examine various spreads. “Despite the relatively comfortable medium-term oil balance, they imply genuine physical tightness, and derivative traders are not afraid to react.”

Cold weather that has increased demand for heating fuels, the decline in US inventories, and less exports from Russia have all contributed to oil's recent upward push.In addition to increasing the risks to Iranian supply, President-elect Donald Trump's impending return to the White House is also causing anxiety about a possible trade war that might disrupt energy supplies.

As part of a rush of executive actions in the early hours following his inauguration on January 20, Trump is anticipated to approve new drilling on federal lands. In addition, the president-elect has promised to impose tariffs on all Canadian imports, including petroleum.

Nevertheless, a lot of analysts doubt that crude will rise. For the remainder of the year, JPMorgan Chase & Co. anticipates that prices will stay close to their present levels. According to Bank of America Corp., Brent will fall to $65 a barrel. China's consumer inflation rate is now closer to zero.demonstrating how difficult it is for policymakers to support the economy.

In an interview with Bloomberg television, Francisco Blanch, head of commodities and derivatives research at Bank of America Corp., stated that weather has generally boosted oil prices. However, "by the end of the day, we're still in a very frail macro outlook, a frail industrial outlook over the next few months, so we do think that the market is in excess — we have more barrels of oil coming than the market wants to buy."