Oil surges 2.6%, settling at $56.94, as US crude stocks plunge and Saudis brush off Trump tweet

Key Points
  • Oil prices rise after Saudi Arabia appeared undaunted after President Donald Trump called on OPEC to slacken its restrictions on crude production.
  • Saudi Energy Minister Khalid al-Falih said OPEC and its partners were "taking it easy" in response to the tweet from Trump.
  • U.S. crude stockpiles plunged by 8.6 million barrels last week, the Energy Information Administration reports.
Jean-Paul Pelissier | Reuters

Oil prices surged more than 2 percent on Wednesday after government data showed an unexpected and sharp drop in U.S. crude stockpiles.

Prices were already higher after Saudi Arabia's influential energy minister brushed aside pressure from President Donald Trump to tread carefully as OPEC and its allies cut output.

U.S. commercial crude stockpiles fell by 8.6 million barrels in the week through Feb. 22, the U.S. Energy Information Administration reported. That was more than twice the drop of 4.2 million barrels reported by the American Petroleum Institute on Tuesday. It also confounded the forecasts in a Reuters survey for a rise of 2.8 million barrels.

Meanwhile, U.S. gasoline stocks fell by by 1.9 million barrels, while inventories of distillate fuels like diesel ticked down by about 300,000 barrels.

U.S. West Texas Intermediate (WTI) crude futures jumped $1.44, or 2.6 percent, settling Wednesday's session at $56.94 a barrel. International Brent crude futures rose $1.19, or 1.8 percent on the day, at $66.40 a barrel around 2:25 p.m. ET.

The weekly report also showed weekly U.S. oil production ticking up to a record 12.1 million barrels per day. Crude exports at nearly 3.4 million bpd also remained close to last week's all-time high of 3.6 million bpd.

Crude futures have been supported this year by OPEC's deal with Russia and other producers to keep 1.2 million bpd off the market in order to drain a global oversupply. The move follows a collapse in crude prices in the final quarter of last year.

But oil prices plunged more than 3 percent on Monday after Trump tweeted at OPEC, saying the the cost of crude is rising too much and urging the group to "please relax and take it easy."

Trump hounded OPEC throughout last year, blaming the group for high oil prices and lobbying for it to end an earlier round of production cuts. OPEC ultimately lifted the caps in June, before agreeing to restore them in December.

On Wednesday, Saudi Energy Minister Khalid al-Falih responded to Trump, saying the kingdom and its partners are indeed proceeding cautiously during the fresh round of output cuts.

"We are taking it easy. The 25 countries are taking a very slow and measured approach. Just as the second half of last year proved, we are interested in market stability first and foremost," Falih told CNBC.

We'll see better OPEC compliance in 2019, Saudi energy minister says

Falih added that he is leaning toward extending the deal to curb output into the second half of 2019, but OPEC remains flexible and will assess market conditions before making a decision.

"Trump's tweet is likely to have been sparked in particular by the sharp rise in U.S. gasoline prices," Commerzbank said.

U.S. gasoline futures have climbed by nearly 17 percent in the last month, compared with a roughly 60 percent rally in U.S. crude futures.

Based on current market data, the so-called OPEC+ group is "likely to continue with the production cuts until the end of the year," a Gulf OPEC source told Reuters on Tuesday.

Russian Energy Minister Alexander Novak also said this week the oil market was more or less stable and price volatility, which is unwelcome to both producers and consumers, was low.

— Reuters contributed to this report.