Oil futures climbed on Wednesday to score their highest finish in six weeks, a day after the Organization of the Petroleum Exporting Countries and its allies stuck with plans to continue gradually easing production curbs, signaling confidence in the demand outlook despite a surge in COVID-19 cases in India.
Prices extended their gains after a U.S. government report revealed a modest weekly increase in domestic crude and gasoline supplies, along with data showing a significant rise in implied demand for gasoline from a year ago.
The focus for the oil market “remains on the longer term state of the global economy and crude demand recovery, which continues to flash signs of strength heading into the peak seasonal demand period,” said Robbie Fraser, global research and analytics manager at Schneider Electric, in a daily note.
West Texas Intermediate crude for June delivery
rose 92 cents, or 1.5%, to settle at $63.86 a barrel on the New York Mercantile Exchange.
the most actively traded contract, added 91 cents, or 1.4%, at $66.78 a barrel.
Based on the front-month contracts, both WTI and Brent registered the highest settlements since March 17, according to Dow Jones Market Data.
Prices for both benchmarks gained more ground after a weekly report on petroleum supplies from the Energy Information Administration Wednesday.
The report revealed that over the past four weeks ended April 23, motor gasoline product supplied, a proxy for demand, has climbed by 67.5% from the same period a year ago, to average 8.9 million barrels a day.
Meanwhile, gasoline supplies rose by 100,000 barrels last week, while distillate stockpiles, which include heating oil, declined by 3.3 million barrels for the week.
The S&P Global Platts survey had expected supplies of gasoline to be unchanged for the week, while distillate inventories were expected to fall by 1.2 million barrels.
U.S. crude inventories edged up by 100,000 barrels for the week ended April 23, the EIA said. On average, analysts polled by S&P Global Platts forecast a decline of 200,000 barrels for crude stocks, while the American Petroleum Institute on Tuesday reported a 4.3 million-barrel rise.
The EIA data also showed crude stocks at the Cushing, Okla., storage hub climbed by 700,000 barrels for the week.
Total oil production, however, edged down by 100,000 barrels to 10.9 million barrels per day. There was a “massive draw down” of about 5 million barrels in crude stocks at the Gulf Coast, suggesting the “demand outlook is about to start looking better,” said Edward Moya, senior market analyst at Oanda.
On Tuesday, prices for oil also rose. OPEC and its allies, a group known as OPEC+, decided, during a surprise meeting, to stick with a plan to gradually relax output curbs beginning next month.
“The market expects a major revitalization for global oil demand from this summer onwards and prices are rising again as we come closer to the beginning of the expected recovery period,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in market commentary.
OPEC and other institutes and organization have also been repeating their optimism for oil demand in the second half of this year, and prices have “followed suit, as the market is waiting impatiently for the upturn,” he said.
In a note, Eugen Weinberg, analyst at Commerzbank, said that the oil market clearly views the OPEC+ decision as “positive.” However, “there is definitely a risk that the increases in OPEC+ production by over 2.1 million barrels in the coming three months could result in a supply surplus given the restrictions in place in major oil importing countries such as India, Japan and Turkey.”
On Wednesday, India’s death toll from COVID-19 topped 200,000, with the health ministry reported a single-day record 3,293 related deaths in the last 24 hours, according to the Associated Press.
Oil prices are likely to pare gains over the short term because of the situation in India, said Tariq Zahir, managing member at Tyche Capital Advisors. Energy demand from India is “going to get hit hard.”
Also on Nymex, natural-gas futures climbed as the May contracts expired at the end of the trading session. May natural gas
added 1.8% to nearly $2.93 per million British thermal units. New front month June natural gas
settled at $2.96, up 0.6%.
The EIA will issue a weekly update Thursday on U.S. natural gas supplies. On average, analysts polled by S&P Global Platts expect the data to show a climb of 9 billion cubic feet for the week ended April 23.