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Oil futures climbed to their highest levels in more than two-weeks Wednesday, finding support after U.S. government data reveal the biggest weekly crude-supply decline so far this year.
A temporary disruption to Iraqi supply also helped boost prices.
Price action
-
West Texas Intermediate crude for May delivery
CL00,
-0.30% CLK23,
-0.30%
gained 77 cents, or 1.1%, to $73.97 per barrel on the New York Mercantile Exchange. Prices eased back from $74.21 shortly before the supply data, but remained on track for the highest finish since March 13, FactSet data show. -
May Brent crude
BRN00,
-0.74% BRNK23,
-0.55% ,
the global benchmark, gained 57 cents, or 0.7%, to $79.22 per barrel on ICE Futures Europe. -
Back on Nymex, April gasoline
RBJ23,
-1.74%
declined by 0.4% to $2.7002 per gallon, while April heating oil
HOJ23,
-3.17%
fell by 2.4% to $2.7038 per gallon. -
April natural gas
NGJ23,
-1.48%
rose 1.2% to $2.054 per million British thermal units on the last day of trading for the contract before it expires at the end of Wednesday’s session.
Supply data
The Energy Information Administration on Wednesday reported the largest year-to-date weekly decline in crude inventories.
Crude stockpiles fell by 7.5 million barrels for the week ended March 24, the EIA said.
On average, analysts forecast a decline of 5.5 million barrels, according to a survey by S&P Global Commodity Insights. The American Petroleum Institute, a trade group, separately reported on Tuesday a 6.1 million-barrel weekly decline for crude stockpiles, Dow Jones reported, citing a source.
“A combination of higher refining activity, lower imports and ongoing strength in exports has resulted in a large draw to crude inventories,” said Matt Smith, lead oil analyst, Americas, at Kpler, in emailed commentary. “Crude inputs hit their highest level so far this year as refiners exit spring maintenance.”
The EIA report also showed a weekly inventory decline of 2.9 million barrels for gasoline, while distillate supplies edged up by 300,000 barrels. Analyst surveyed by S&P Global Commodity Insights had forecast supply decreases of 4.8 million barrels for gasoline and 2 million barrels for distillates.
“Strength in implied demand for gasoline resulted in a solid stock draw, while an easing in implied distillate demand resulted in a build,” said Smith.
Distillate demand remains lower year on year, down 10.1% year on year on the four-week average, while implied gasoline demand on the four-week average has finally clambered higher on a year-on-year basis, he said. That’s largely driven by prices at the pump on the national average being lower by 80 cents a gallon compared to this time last year, he said.
Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 1.6 million barrels for the week, the EIA said, while total U.S. petroleum production fell by 100,000 barrels to 12.2 million barrels a day.
Market drivers
Oil-market analysts pointed to other factors helping to fuel the recent rebound in oil after prices fell to the lowest price in more than a year earlier in March.
A legal dispute in Iraq between the Kurdistan Regional Government and the central government in Baghdad has disrupted crude exports via a Turkish pipeline and helped to boost global crude prices.
The dispute is believed to be reducing regional supplies by 400,000 barrels to 450,000 barrels per day, analysts have said.
Going forward, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch that risks to crude prices are on the upside.
“We have recently seen a little weakness to the U.S. dollar giving [dollar-denominated] crude a tailwind,” he said. The Biden administration, meanwhile, also still has to replenish the Strategic Petroleum Reserve, he added.
U.S. Energy Secretary Jennifer Granholm said the U.S. could start buying back crude oil for the SPR late this year, Reuters reported late Tuesday.
The Biden administration last year announced the emergency sale of 180 million barrels of SPR crude to help lower gasoline prices, and has said it would refill the reserve when oil prices fell to around $70 a barrel.
There’s also likely to be further strength in crude on the back of the “reopening of China and increased demand here in the U.S. for gasoline,” said Zahir, although we are still weeks away from the driving season in the U.S. and — a few months from now — the beginning of the Atlantic hurricane season.
“All of these factors we feel will keep the risk to the price of crude to the upside for the days and weeks ahead,” Zahir said.
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