Oil prices surged more than 5 percent on Wednesday, heading for their largest gain in three weeks, after the U.S. government reported a surprise draw in domestic crude stockpiles versus market expectations for a new record high.
Continue Reading Below
Crude stocks unexpectedly fell 4.9 million barrels last week as refineries continued to hike output and imports dropped, the Energy Information Administration (EIA), a division of the U.S. government's Department of Energy, reported. [EIA/S]
Analysts polled by Reuters had expected inventories to hit record highs for an eighth straight week with a build of 3.2 million barrels.
U.S. crude futures <CLc1> were up $1.85, or 5.1 percent, at $37.74 a barrel by 12:46 p.m. EDT (1646 GMT).
Brent futures <LCOc1>, the European benchmark, rose by $1.98, or 5.2 percent, to $39.85, gaining more than $2 earlier.
U.S. crude futures found additional support from TransCanada Corp's <TRP.TO> delayed restart of its 590,000 barrel per day Keystone pipeline that delivers crude to Cushing and Illinois.
Continue Reading Below
U.S. futures' front-month was at its narrowest discount in three weeks to the second month <CLc1-CLc2> following the outage.
Brent was also underpinned by planned maintenance works at Norway's Ekofisk and Britain's Buzzard oil fields.
The rally represented a sentiment shift in oil after last week's 7 percent drop in U.S. crude futures and 4 percent in Brent amid worries the global glut in oil was growing again while producing countries' plans to freeze output would fail.
The EIA also reported that gasoline stocks rose for the first time in six weeks, potentially snapping a pillar of support to U.S. crude prices. Stockpiles at the Cushing, Oklahoma, delivery hub for U.S. crude futures, another key data point, also rose. <USOILG=ECI> <USOICC=ECI>.
But traders chose to focus on more bullish aspects of the inventory report like the crude draw and the drop in crude imports of nearly 450,000 bpd.
"I think the market is more about the total change in (crude) inventories, rather than individual components," said Scott Shelton, energy broker with ICAP in Durham, North Carolina. "It's the first week of the second quarter and we have a net draw. That will force the bears to rethink their bearish balances for Q2."
Refinery runs rose by almost 200,000 bpd as utilization rates rose 1 percentage point. <USOICR=ECI>.
"For refiners, they see a market with strong demand for gasoline and decent profit margins. I expect they will begin ramping up in order to capture the sweet spot of high volume and high margins for as long as it lasts," said David Thompson, executive vice-president at energy-specialized commodities broker Powerhouse in Washington.
(Reporting by Dmitry Zhdannikov in LONDON; Editing by Diane Craft and Marguerita Choy)