Oil settled higher on Wednesday, recovering from multi-month lows, after US government data showed a surprisingly large crude stockpile draw that signalled the market may have been wrong in predicting slumping demand for energy. Crude futures lost more than $10 a barrel over the past month on fear that peak summer demand for gasoline in the United States was not enough to offset a growing global glut in oil supply. A resurgent dollar weighing on commodities and a stock market tumble in No 1 energy consumer China contributed to the decline.
However, data from the US Energy Information Administration showing a 4.2-million-barrel draw in crude stockpiles last week, more than twenty times analysts' expectations for a decrease of 184,000 barrels, indicated demand for energy may have been stronger than some thought. The draw diverged sharply from the prior week's inventory build, which had taken stockpiles to above a five-year seasonal average.
-- Crude futures rise over $1 a barrel before consolidating
The EIA also reported that US gasoline demand was up 6.2 percent from the year-ago period, averaging 9.51 million barrels per day over the past four weeks. "Although just one data point, the latest weekly data may have been enough to provide some support in the face of major headwinds for oil prices," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.
Brent and US crude futures jumped more than $1 each on the EIA data, before closing off their highs due to a stronger dollar. The US currency gained in later afternoon trading on speculation that the Federal Reserve was on track to hike interest rates by September. Brent settled up 8 cents, or 0.2 percent, at $53.38 a barrel, after a session high at $54.33.
US crude finished up 81 cents, or 1.7 percent, at $48.79. Its intraday peak was $49.52. Despite the surprisingly strong crude and gasoline drawdown cited by the EIA, the price rebound on Wednesday paled to the selloff in oil seen earlier in the week. On Tuesday, Brent traded at an early February low of $52.28 while US crude fell to $46.68, its lowest since March.
"It's all a matter of expectations," said David Thompson, executive vice-president at Powerhouse, an energy-specialised commodities broker in Washington. "Given the vast majority of bearish pronouncements on crude over the past few weeks, any sort of draw was likely to elicit a response like this." A mounting global surplus of oil has stripped about 8 percent off crude futures so far this year. Notwithstanding the weekly US stock draw, the build in global inventory is showing few signs of reversing, analysts say.
A Reuters survey on Tuesday showed members of the Organisation of the Petroleum Exporting Countries produced around 3 million bpd of oil more than daily demand in the second quarter. Mike Tran, commodities specialist at RBC Capital Markets, said US crude could average in the low $50 range through the balance of the year. "This remains a supply-driven market. Supply drove us into this low price environment and supply will have to be what ultimately digs us out," he said.
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