U.S. crude oil prices rose about 1% Wednesday after domestic production fell substantially in the wake of severe winter storms this month.
The West Texas Intermediate futures contract for March gained 72 cents, or 0.97%, to settle at $75.09 a barrel. The Brent futures March contract gained 49 cents, or 0.62%, to settle at $80.04 a barrel.
Production in the U.S. fell by an estimated 1 million barrels per day to 12.3 million bpd total for the week ending Jan. 19, according to the Energy Information Administration. Commercial crude inventories in the U.S. dropped by 9.2 million barrels during the same period.
A blast of Arctic weather hit oil output in the U.S. last week particularly in North Dakota, the third-largest crude producing state in the nation. Crude production in North Dakota was down by as much as 700,000 barrels per day last week, according to the state pipeline authority.
Output in North Dakota is recovering with production down 170,000 to 220,000 barrels per day on Wednesday, according to the pipeline authority.
Surging U.S. crude production has weighed on prices for months with estimated output returning to a record of 13.3 million bpd before the storm. Record production in the U.S. has collided with a weakening economy in China, raising worries that supply is outstripping demand for oil.
China's central bank on Wednesday pledged to slash the amount of liquidity that the nation's financial institutions are required to hold in an effort boost economic growth.
"Oil is being supported as China is taking steps to try to shock and awe its beleaguered economy out of a tailspin," Phil Flynn, an analyst at the Price Futures Group, wrote in a Wednesday note.
"Talk of a big rescue package is making the rounds and steps today by the Chinese government suggest that that could be coming sooner rather than later," Flynn wrote.
Elsewhere on the supply side, Libya restarted production Sunday at the Sharara oilfield, which has the capacity to produce 300,000 barrels per day. The oilfield was shut down for two weeks due to protests.
Oil prices should remain range bound in the first quarter of 2024 barring a significant escalation in the conflict in the Middle East, according to Vikas Dwivedi, an oil and gas strategist at Macquarie.
WTI is up and Brent are up more than 4% this year as tensions rise in the Middle East. The U.S. and Britain have launched several rounds of airstrikes in Yemen against Houthi militants, who continue to attack shipping in the Red Sea.
Israel is pressing ahead with its military campaign in Gaza, encircling the southern city of Khan Younis where fierce fighting has taken place. So far, the conflict in the Middle East has not led to a major disruption in oil supplies.
Brent should remain in a range of $72 to $82 unless supply is materially affected in the Middle East, Tamas Varga, an analyst with PVM Oil Associates, wrote in a note Wednesday.
Geopolitical risk is largely already factored into prices, according to Dwivedi. "Without current geopolitical tensions, we believe crude would sell off meaningfully," the analyst said.