By Yuka Obayashi

TOKYO, Reuters – On Thursday, oil prices increased to continue gains from the previous session. Fuel inventories tightened further and gasoline supplies hit a two year low. This indicates strong demand.

After rising 0.9% yesterday, futures gained 17 cents or 0.2% to $85.99/barrel at 0040 GMT.

U.S. West Texas Intermediate’s crude futures gained 37c, or 0.4%, at $83.79 a barrel. The November WTI crude oil, which ended Wednesday, was up 91c, or 1.1% after reaching the highest level since October 2014.

U.S. crude stockpiles fell by 431,000 barrels from Oct. 15 to 426.5million barrels. That is compared to analyst expectations in a Reuters Poll for a 1.9-million barrel rise. EIA/S

The U.S. stock market at Cushing, Oklahoma’s delivery hub fell to their lowest point since October 2018. This indicates that the market is tightening and may need some time for it to improve.

The EIA reported that gasoline inventories in America fell more than expected by 5.4 million barrels during the week ending November 2019. This is the lowest level since November 2019 and the EIA stated that distillate stocks dropped to levels they have not seen since April 2020.

Citi Research stated in a note that crude oil inventories have been increasing at Cushing, which has supported WTI structure and price, as well as the backwardation of the prompt end WTI curve strengthening to above 50c.

Citi stated that “this trend exists despite the fall maintenance season which is expected U.S crude oil balances to decrease in Oct. 21.”

WTI futures contracts currently show signs of tight market conditions. Later-dated contracts trade at a lower rate than current contracts, which is a sign that the market has become more competitive. Due to the higher storage costs, later months are usually traded at a lower price.

This steep backwardation motivates oil companies to sell it immediately, rather than keeping it in storage.

Analysts and company officials said that while oil refiners have increased their output in order to satisfy a coordinated uptick of demand in Asia, Europe, and the United States in recent months, plant maintenance and high prices will limit supply during the fourth quarter.

Oil markets hit new multi-year highs in this week’s oil market. They were also supported by a global gas and coal crunch that has driven the switch to diesel for power generation.

On Tuesday, the Chinese government indicated that it is looking to lower record coal prices.