Oil extends gains on hopes of US stimulus and crude stocks drawdown

Oil prices rose in early trade on Wednesday, adding to solid gains overnight, on expectations the incoming US administration will go ahead with massive stimulus spending that would boost fuel demand and draw down crude stocks.

US West Texas Intermediate (WTI) crude futures climbed 23 cents, or 0.4 per cent , to $53.21 a barrel at 0155 GMT, building on a 1.2 per cent rise on Tuesday.

Brent crude futures rose 25 cents, or 0.5 per cent , to $56.15 a barrel, adding to a 2.1 per cent gain on Tuesday.

US President-elect Joe Biden’s Treasury Secretary nominee Janet Yellen urged lawmakers on Tuesday to “act big” on pandemic relief spending, reinforcing hopes of massive spending to boost growth.

“Certainly the expectation is that will support better growth and better demand in the US,” said National Australia Bank’s head of commodity research, Lachlan Shaw.

The oil market continued to rise despite the International Energy Agency having cut its outlook for first-quarter oil demand by 580,000 barrels per day, due to tight lockdowns in Europe and border closures to stop soaring Covid-19 infections.

“That clearly vindicates the move by Saudi Arabia last week to cut 1 million barrels per day of their own production unilaterally for February and March,” Shaw said.

“The risk right now is around coronavirus lockdowns. We’ve seen some countries extending lockdowns.”

Germany on Tuesday extended a lockdown for most shops and schools for another two weeks, to Feb. 14.

Traders will be watching out for US crude and products inventory data due from the American Petroleum Institute on Wednesday and from the Energy Information Administration on Friday.

Six analysts polled by Reuters estimated, on average, that crude stocks fell by 300,000 barrels in the week to Jan. 15, but expect gasoline stockpiles rose by 3.0 million barrels. Distillate inventories, which include diesel, heating oil and jet fuel, were seen up by 800,000 bbl.