Oil edges higher on US fuel demand, extends rally

© Reuters. FILE PHOTO: A pump jack stands idle in Dewitt County, Texas January 13, 2016. REUTERS/Anna Driver

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices edged higher on Wednesday, extending gains for a third session, after U.S. government data showed that fuel demand has climbed to its highest since the start of the COVID-19 pandemic.

Brent crude rose 42 cents to $71.47 a barrel by 11:06 a.m. EDT (1506 GMT). U.S. West Texas Intermediate (WTI) crude rose 6 cents to $67.60 a barrel.

The four-week average for U.S. total product supplied, a proxy for fuel demand, soared to nearly 21 million barrels per day, its highest since March 2020, when governments first began to widely impose pandemic-related restrictions, U.S. Energy Information Administration data showed Wednesday.

U.S. crude inventories fell by 3 million barrels in the past week to 432.6 million barrels, EIA said.

Gasoline stocks fell by 2.2 million barrels in the week to 225.92 million barrels, EIA said. Distillate stockpiles, which include diesel and heating oil, rose by 600,000 barrels in the week to 138.46 million barrels.

"Total oil demand was up to a really strong level, which shook off some recent concern that the Delta variant would impact that number," Tony Headrick, energy market analyst at CHS Hedging. "We are in a relatively well-supported environment."

Over the past three sessions, both Brent and WTI have risen around 9%. The rally erased most of the slump from a week-long losing streak on the back of a resurgence in COVID-19 cases.

Price gains came after Mexican supply fell by more than 400,000 barrels per day following a fire on an oil platform. Mexico's state oil firm said it expected to resume production by Aug. 30.

"While volatility looks set to continue, we see further gains for oil as global economic normalization continues and OPEC remains disciplined on crude supplies," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

The bank expects Brent crude prices to rise to $75 a barrel by December.

In a promising sign that the spread of infections from the coronavirus Delta variant was easing in China, the country on Wednesday reported just 20 new confirmed coronavirus cases for Aug. 24, down from 35 a day earlier.