Oil surges 2.6% to 6-week high, settling at $65.17, after surprise drop in US crude stockpiles
- Oil prices extended earlier gains as U.S. commercial crude stockpiles unexpectedly fell by 2.6 million barrels.
- The United States and Saudi Arabia are expected to put pressure on Iran as the Saudi Crown Prince visits Washington
- Healthy demand has also supported crude prices, but a relentless rise in U.S. crude production is capping gains.
Oil prices rose for a second day on Wednesday, trading at six-week highs, on a surprise decline in U.S. crude inventories and as concern persisted over possible disruption to Middle East supply.
U.S. West Texas Intermediate (WTI) crude futures ended Wednesday's session up $1.63, or 2.6 percent, at $65.17 a barrel.
Brent crude futures were up $1.97, or 2.9 percent, at $69.39 a barrel by 2:24 p.m. ET. The price has risen by about 12 percent since hitting a two-month low of $61.77 in early February.
Oil prices barely budged after the U.S. Federal Reserve hiked interest rates and upgraded its outlook for economic growth.
Data released by the U.S. Energy Information Administration (EIA) on Wednesday morning showed a surprise 2.6 million barrel draw in crude inventories. Analysts had expected a 2.5 million barrel build.
"A few things happened," said Jim Ritterbusch, president of Ritterbusch and Associates, referring to the data released by the EIA.
"Crude imports dropped by half a million barrels per day, that contributed to the draw. We saw refinery runs increase more than expected by around 400,000 barrels per day so that ate up a lot of crude. And exports were up slightly," he said.
Gasoline stocks fell by 1.7 million barrels, compared with analysts' expectations in a Reuters poll for a 2.0 million barrels drop. Distillate stockpiles, which include diesel and heating oil, fell by 2.0 million barrels, versus expectations for a 1.7 million barrels drop, the EIA data showed.
Norbert Ruecker, head of macro and commodity research at Swiss bank Julius Baer said seasonally low demand at the end of the northern hemisphere winter meant he had "a rather cautious near-term outlook on commodities."
Investors have been particularly wary of the steep rise in U.S. output, which has grown by more than 20 percent since mid-2016, to 10.41 million bpd, putting the United States on track to become the world's largest oil producer this year.
Saudi Arabia's Crown Prince Mohammed bin Salman on Tuesday arrived in Washington for a state visit, raising speculation the United States could reimpose sanctions on Iran, following renewed criticism of the 2015 nuclear deal.
"You still have geopolitical considerations and possible U.S. action on Iranian sanctions ... that is going to be relatively prompt, in May," Petromatrix strategist Olivier Jakob said.
"So even though you do see signs that the market is lax on the physical side, do you go aggressively bearish when you have the potential for something happening between the U.S. and Iran?"
Analysts also pointed to the nomination of Mike Pompeo as new U.S. Secretary of State as a risk to oil markets, given he fiercely opposed the Iranian nuclear deal as a member of Congress.
"The nomination of Mike Pompeo for U.S. Secretary of State ... raises the likelihood of oil trade disruptions," Citi said in a note.
Should the United States reimpose sanctions against Iran, energy consultancy FGE said that would likely result in a 250,000 to 500,000 barrels per day (bpd) drop in its exports by year-end.