Oil Rallies to Six-Week High After Surprise US Storage Slump

(Bloomberg) -- Oil climbed to the highest level in six weeks after crude inventories in the world’s biggest economy dropped for the first time in a month, catching traders off guard.

Futures jumped 2.6 percent on Wednesday in New York. Refiners and brokers pulled more than 2.6 million barrels of crude from American storage facilities last week, confounding more than 80 percent of analysts in a Bloomberg survey who were expecting an increase. The withdrawal occurred amid speculation the U.S. may intensify sanctions against Iran, OPEC’s third-largest supplier.

U.S. crude stockpiles underwent “a pretty strong draw, especially when you look relative for this time of year,” said Nick Holmes, who helps manage $16 billion at Tortoise, a Leawood, Kansas, investment firm. “There is some geopolitical tension and we’re starting to see some of that premium creep into the price.”

Crude popped above $65 a barrel in New York for the first time in six weeks as investors focused on the stockpile withdrawals in Wednesday’s weekly government tally and shrugged off another jump in domestic crude production to a record high.

West Texas Intermediate crude for May delivery advanced $1.63 to settle at $65.17 a barrel on the New York Mercantile Exchange, the highest level since Feb. 2. The rally followed a 2.2 percent increase on Tuesday.

Brent for May settlement jumped $2.05 to end the session at $69.47 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $4.30 premium to West Texas Intermediate.

Demand Story

Wednesday’s report by the Energy Information Administration showed U.S. crude inventories fell by 2.62 million barrels last week, compared with the gain of 3.25 million that was the median estimate from analysts in a Bloomberg survey. Only two of the 12 analysts were prepared for a decline, and neither of them forecast a withdrawal on that scale.

Additionally, U.S. gasoline inventories tumbled for a third week to the lowest level since late January, while distillate supplies contracted for a sixth straight week to the lowest since December. Refinery utilization ticked higher for a third week.

As refiners “soak up all these crude inventory barrels, they’re supposed to be churning out more gasoline and distillate, but we’re not seeing that,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by telephone. “We’re seeing a commensurate drop in all of those refined product inventories as well and that’s because demand in the U.S. and globally is so strong.”

Beware of Cushing

Gasoline futures jumped 2.4 percent to settle at $2.0122 a gallon, the highest level since August, while diesel futures surged 2.8 percent to $2.0037 a gallon.

Yet, a bearish aspect of Wednesday’s inventory report was an increase in supplies at Cushing, Oklahoma, the delivery point for WTI futures, by the most since October last week. That may help place a cap on a strong price rally going forward.

“Somewhat limiting to crude was” the build in Cushing supplies, said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. Oil prices are at “the top of a very predictable range now.”

Oil-market news:

Pierre Andurand, one of the most bullish oil hedge fund managers, posted a near 10 percent drop in the first two months of the year as his eponymous fund stumbled against a background of zig-zagging energy prices, according to people familiar with the matter. OPEC and its allies are said to delay the next meeting of the Joint Ministerial Monitoring Committee to April 19-20 from April 14-15, according to people familiar with the matter. Federal Reserve officials, meeting for the first time under Chairman Jerome Powell, raised the benchmark lending rate a quarter-point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook.

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Carlos Caminada, Jeffrey Taylor.


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