Oil Holds Above $85 as Traders Focus on Stockpile Draw, Ukraine

(Bloomberg) -- Oil held above $85 a barrel after industry estimates showed a draw in U.S. stockpiles and investors tracked tensions over Ukraine.

West Texas Intermediate was steady after rallying almost 3% on Tuesday. The American Petroleum Institute reported U.S. crude stockpiles shrunk 875,000 barrels last week, according to the people familiar with the data. If confirmed by government figures due later Wednesday, it would be the eighth decline in nine weeks. Oil timespreads have also widened, a bullish signal.

Crude is having a volatile week, losing more than 2% on Monday, then rebounding. Prices remain close to a seven-year high on prospects for a continuation of the strong revival in demand from the pandemic as mobility picks up. A string of Wall Street banks including Goldman Sachs Group Inc. have forecast oil will hit $100 a barrel this year as the global market tightens.

This is literally a lock-and-load market and I expect to see some shots, said John Driscoll, director at JTD Energy Services Pte. The Ukraine issue is going to be very disruptive for the energy markets. There is a lot of anxiety and frayed nerves out there. We are going to see volatility but the market is still very bullish. Oil is going to march toward $90, thats inevitable.

On Ukraine, President Joe Biden said he would consider sanctioning Vladimir Putin if the Russian leader orders an invasion. While a potential conflict carries enormous risks for financial markets, especially energy commodities such as gas and oil, Jeff Currie, Goldman's global head of commodities research, told Bloomberg TV that the banks base case is for no disruption to supplies.

The oil market remains heavily backwardated -- a bullish pricing structure, with near-term contracts trading above those further out -- amid fears of tightening supply. Brents prompt timespread has surged to $1.09 a barrel in backwardation, widening from 41 cents at the start of the month.

A Bloomberg survey predicted a 1 million-barrel build in U.S. crude stockpiles last week and a 1.9-million barrel increase in gasoline inventories. Crude holdings in the U.S. are still near the lowest level in more than three years.

Also in focus Wednesday is the Federal Reserves first policy-setting meeting of the year. Officials are expected to reaffirm their commitment to containing roaring inflation by ending stimulus and raising interest rates over 2022.

On Tuesday, the Biden administration pressed on with its effort to contain oil and gasoline prices with a loan of 13.4 million barrels of crude from its strategic reserve. The awards were part of a previously announced move.

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