Oil jumps more than 2% to reverse early losses on higher U.S. gasoline demand, refinery runs

An aerial view shows a cruise ship (L) and tanker vessel anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil futures rose on Thursday, erasing earlier losses, on signs U.S. gasoline demand is rising despite a big surprise build in crude inventories and worries that China's new Hong Kong security law could result in trade sanctions.

The U.S. Energy Information Administration (EIA) said crude inventories rose 7.9 million barrels in the latest week, exceeding expectations, due to a big increase in imports. Gasoline stockpiles fell unexpectedly, but refiners boosted output.

"Even though we got the big increase in crude supplies, there's optimism in the numbers because of the uptick in refinery runs and because of the uptick in gasoline demand," said Phil Flynn, senior analyst at Price Futures Group in Chicago.

Oil prices have rebounded in recent weeks on anticipation of improved demand after the coronavirus pandemic sapped worldwide consumption roughly 30%. Overall investment is dropping and U.S. production cuts are balancing out the supply glut, but demand still has not bounced back entirely.

On its second to last day as the front-month, Brent futures for July delivery rose 55 cents, or 1.6%, to settle at $35.29 a barrel. West Texas Intermediate crude rose 90 cents, or 2.7%, to settle at $33.17 per barrel.

Uncertainty about Russia's commitment to continuing deep output cuts kept the price gain in check. Saudi Arabia and other OPEC producers are considering extending record high output cuts until the end of 2020 but have yet to win support from Russia, according to OPEC+ and Russian industry sources.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group dubbed OPEC+, meets on June 9 to discuss continuing the April supply deal that cut 9.7 million bpd from the market.

Markets are also concerned that Washington could slap trade sanctions on China due to Beijing's move to impose a new security law on Hong Kong. The United States and other nations said this would threaten freedom and breach a 1984 Sino-British agreement on the autonomy of the former UK-colony.