Crude oil prices rallied by over 10 percent in Wednesday trading as U.S. crude storage builds grew more slowly than expected and gasoline drawdowns surprised analysts by increasing.
The rally in prices coupled with tentative indications of recovery in European physical oil markets boosted optimism that fuel consumption will recover as U.S. states and some European countries reopen their economies.
Crude prices collapsed in early April as global fuel demand sank over 30 percent due to lockdown measures meant to control the spread of the CCP (Chinese Communist Party) virus.
President Donald Trump helped negotiate a deal in mid-April between the OPEC+ cartel (including Russia), the United States, Mexico, and other oil-producing nations to reduce oil production by almost 10 million barrels per day (bpd). Since then, oil majors and unconventional drillers across the United States have slashed production in an effort to reign in costs.
According to Reuters, West Texas Intermediate (WTI) crude futures jumped $2.72 to close at $15.06 per barrel—an increase of 22 percent. Brent crude oil futures finished up $2.08—or over 10 percent—at $22.54.
American crude oil inventories expanded by around 9 million barrels last week to some 527.6 million barrels, which the Energy Information Administration said was around 7 million less than their record level. At 9 million barrels, the build was lower than the 10.6 million barrels analysts said they expected in a recent Reuters oil-industry poll.
According to Bob Yawger, director of the futures division at Mizuho Americas in New York, the development has bought the oil industry in the United States some time—or at least postponed the advent of a severe storage crisis. “The crude oil number is a big number at the end of the day, but it’s not as big of a number that we had for the last three weeks,” he said.
According to the data, U.S. gasoline stockpiles had been drawn down to the tune of 3.7 million barrels from their record highs of last week, as an uptick in refinery production was offset by increasing fuel demand.
Demand for gasoline over the past month is down some 44 percent over the same period last year, and the drawdown is being viewed as a sign that declines in consumption may have reached their lowest point. The overall demand for fuel has declined by 28 percent over the past month.
Based on the record-low price of oil, the United States will be adding as much as 75 million barrels to our strategic reserves. pic.twitter.com/AauLngg1h1
— The White House (@WhiteHouse) April 20, 2020
As storage facilities across the U.S. fill rapidly and the Strategic Petroleum Reserve (SPR) edges toward capacity, production cuts by conventional drillers and U.S. shale producers are slowing flows into storage facilities. According to Rystad Energy, cuts in production could amount to some 300,000 bpd in May and June.
“As long as we see openings in the economy, we will not see plunges like we saw a week ago,” said Gene McGillian, market research vice president at Tradition Energy in Stamford, Conn. “But markets heading back up to pre-crisis days are going to be tough to come by.”
Reuters contributed to this report.