Oil surges 1.8% to 2-week high, settling at $62.77, after surprise drop in US crude stockpiles

Key Points
  • Oil prices reversed losses to trade higher after closely-watched government data showed U.S. crude stockpiles dropped unexpectedly.
  • A strong U.S. dollar, which makes oil costlier for some buyers, backed off recent highs.
Oil pumpjacks in silhouette at sunset.

Oil prices rallied on Thursday, boosted by data showing a surprise draw in U.S. crude inventories and a drop in the dollar.

West Texas Intermediate (WTI) futures rose 98 cents, or 1.6 percent, to $62.66 a barrel by 2:18 p.m. ET, after hitting a two-week intraday high above $63.

Brent crude futures were up 89 cents, or 1.4 percent, at $66.31 a barrel. The contract also hit a two-week high.

U.S. crude inventories unexpectedly fell 1.6 million barrels in the week to Feb. 16, as net imports dropped to a record low and exports surged, according to data from the Energy Information Administration. Analysts had expected an increase of 1.8 million barrels.

Crude stocks at the closely watching Cushing, Oklahoma delivery hub for WTI fell by 2.7 million barrels, EIA said.

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"The reason that the inventories continue to drop at Cushing is because the market remains backwardated and therefore it's uneconomical to be storing crude," said Andrew Lipow, president of Lipow Oil Associates in Houston, Texas.

In a market structure called backwardation, prompt crude prices are higher than forward prices, discouraging storage.

"It makes more sense to liquidate your on-hand inventories," Lipow said.

The EIA said net crude imports fell last week to 4.98 million bpd, the lowest since the EIA started recording the data in 2001.

Gasoline stocks rose 261,000 barrels, compared with analysts' expectations in a Reuters poll for a 283,000-barrel decline. Distillate stockpiles, which include diesel and heating oil, fell by 2.4 million barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

Exports of U.S. crude jumped to just above 2 million bpd, close to a record 2.1 million hit in October. That helped push net imports to the lowest level on record.

The Louisiana Offshore Oil Port (LOOP), the largest privately owned crude terminal in the United States, completed the first very large crude carrier (VLCC) crude oil loading operation at its deepwater port, the company said on Sunday. The supertankers can ship about 2 million barrels of oil.

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Inventories usually rise at this time of year, as many refineries cut crude intake to conduct maintenance, but a bottleneck in Canada's pipeline system has reduced U.S. imports and pushed U.S. stocks lower.

Oil prices were also supported as the dollar declined from an eight-day peak. The Japanese yen rose as increased financial market volatility sent traders looking for a safe haven.

A weaker dollar makes oil and other dollar-denominated commodities cheaper for holders of other currencies.

The correlation between moves in the oil price and the dollar has strengthened in recent weeks, as investors increasingly sell other assets to buy the U.S. currency on expectations of a faster pace of rate rises.

U.S. weekly oil production was nearly unchanged at 10.27 million barrels a day, remaining near record levels. Meanwhile, crude exports climbed above 2 million barrels a day, near an all-time high set last year.