Oil Climbs as Stockpiles Fall at Biggest U.S. Crude Storage Hub

(Bloomberg) -- Oil rose in tandem with equities after traders digested a U.S. inventory report showing the biggest decline in crude stockpiles at the Cushing, Oklahoma, storage hub since June.

Futures in New York rose 1.1% on Thursday to settle at a fresh, nearly seven-year high with the stock market heading toward its best day since March. Supplies at the nation’s largest storage site at Cushing slid last week as traders sent more crude to the U.S. Gulf Coast for export.

“The market is in a severe backwardation right now, so there’s really no incentive to store crude oil,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC.

However, domestic crude inventories increased by more than 6 million barrels last week -- more than expected -- while oil production climbed for a fifth straight week, according to the Energy Information Administration report. Refineries are entering the peak of what’s known as “turnaround season,” where plants spruce up equipment and typically use less crude.

Crude’s rally in recent months has been underscored by a growing natural gas crisis. The International Energy Agency on Thursday became the latest to say gas shortages in Europe and Asia are boosting demand for crude. Banks including UBS Group AG and Citigroup Inc. this week raised their oil price forecasts because of gas-to-oil switching. 

The shift to oil products for power generation is already underway in Southeast Asia and the Middle East and will continue throughout this quarter, said Shirin Lakhani, director of global oil service at Rapidan Energy Group. Countries like Pakistan, Bangladesh and India have greater flexibility than Europe to burn different fuels. 

Meanwhile, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman reiterated the need for OPEC and its allies to take a gradual, phased approach to supply hikes.

“We have done a remarkable job,” he said during the Russian Energy Week conference. “Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC has done.”

U.S. State Department Spokesman Ned Price said the U.S. engaged in diplomacy with OPEC+ members and is “expressing in private our concerns.”

“We are concerned, and we are monitoring the situation very closely,” Price said Thursday during a briefing.

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