Oil jumped as much as 3 percent on Wednesday, ending at the highest level in a week, as sharp drawdowns in US crude and gasoline stocks fed a rally spawned when Greece passed an austerity plan to avoid a sovereign debt default. Oil's surge mirrored movements across commodities and equities markets, as the euro rose while the dollar weakened, encouraging investors to put funds into riskier assets.
The 19-commodity Reuters-Jefferies CRB index rose 1.3 percent, hitting a two-week high. US crude inventories fell last week for a fourth week, government data showed, dropping 4.4 million barrels, much more than forecast, to 359.5 million barrels. Gasoline stockpiles declined 1.4 million barrels to 213.2 million barrels, against the forecast for a small increase. "The oil market has been wrong-footed by the crude withdrawal, which is at least twice as big as people had expected," said Addison Armstrong, market research senior director at Tradition Energy in Stamford, Connecticut.
"The stats are too big to ignore, so I would not be surprised if prices rise again in the coming days," he added. ICE Brent crude for August jumped $3.62, or 3.3 percent, settling at $112.40 a barrel, its highest close since June 22. US August crude settled at $94.77, gaining $1.88, or 2.02 percent, also the highest finish since June 22.
Brent's premium against US crude widened to above $17, after ending at $15.50 on Tuesday. Brent's volume was 9 percent above the 30-day average while US crude's volume was 15 percent below the 30-day average. "Brent led the way and the inventory drops were a surprise, but we were looking for short-covering ahead of the holiday," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago. August US crude lagged as it "ran into resistance near the 200-day moving average," he added.
Greek Prime Minister George Papandreou won a parliamentary majority in favour of a five-year austerity program, clearing a major hurdle in Greece's bid to win access to international funding to avoid default. US gasoline futures for July delivery leaped 12.01 cents, more than 4 percent, to settle at $3.0097 a gallon, the highest in two weeks, on the surprise supply draw. It was the biggest one-day percentage gain since May 9, and gave a lift to crude futures.
Gasoline inventories fell for a second week just ahead of the July 4th holiday weekend, an important part of the US summer driving season. Economic data showed US pending home sales rose more than expected in May, also supportive for crude, though a glut in unsold properties continued to drag the market. Oil prices have bounced back from four-month lows hit last week after the 28-nation International Energy Agency decided to release 60 million barrels of government-held oil reserves. Sales of the emergency oil stocks began in Europe on Wednesday, but traders complained about confusing signals from different countries and industry lobbies warned of price spikes. Bidding for the 30 million barrels that the US plans to sell under the co-ordinated move ended at 2 pm EDT (1800 GMT) Wednesday. The US Department of Energy had yet to say when it will announce the results.
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