Oil climbs as US inventory draw, Brexit deal hopes boost risk appetite

Oil climbed for a second day on Thursday in light holiday trade as a drawdown in US stockpiles of crude and gasoline raised demand hopes, while hints of an imminent Brexit deal raised investors' risk appetite.

Brent crude futures rose 38 cents, or 0.7 per cent, to $51.58 a barrel by 0530 GMT, while US West Texas Intermediate (WTI) crude futures increased 31 cents, or 0.6 per cent, to $48.43.

Both contracts gained more than 2 per cent on Wednesday.

"Lower US inventories of crude and fuels, as well as signs of a potential Brexit deal which led to weaker US dollar, were good news," said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

"But lingering worries over a new variant of the novel coronavirus capped gains," he said, adding that oil markets were quiet with investors in holiday mode.

US crude inventories fell by 562,000 barrels in the week to December 18 to 499.5 million barrels, the Energy Information Administration said on Wednesday.

Gasoline stocks fell by a surprise 1.1 million barrels to 237.8 million barrels, the EIA said, while distillate stockpiles fell by a more-than-expected 2.3 million barrels to 148.9 million barrels.

Oil prices also drew support from news that Britain and the European Union were on the cusp of striking a narrow trade deal on Thursday, swerving away from a chaotic finale to the Brexit split.

The potential deal boosted sterling, which was up 0.2 per cent against the dollar after closing up 0.9 per cent. A softer dollar makes commodities priced in the greenback more affordable for holders of other currencies.

"Risk appetite among investors improved also because of a rebound in global equities, which underlined that fears over a new variant of the coronavirus have receded a little," said Satoru Yoshida, a commodity analyst with Rakuten Securities.

At least four drugmakers expect their Covid-19 vaccines will be effective against the new fast-spreading variant of the virus that is raging in Britain and are performing tests that should provide confirmation in a few weeks.

Still, some investors remain jittery about the recovery of oil demand as Americans were warned again not to travel for Christmas as the latest surge in cases overwhelmed hospitals.

On the supply side, US energy firms this week added oil and natural gas rigs for a fifth week in a row.

The oil and gas rig count, an early indicator of future output, rose 2 to 348 in the week to December 23, energy services firm Baker Hughes said.