Oil prices rose more than 3 percent on Wednesday, bolstered by the biggest one-week drop in US inventories so far this year, and after Iraq and Algeria joined Saudi Arabia in supporting an extension to OPEC supply cuts. Some analysts questioned the staying power of the sharp price rebound, given increased crude production in the United States, along with OPEC members Libya and Nigeria.
The US Energy Information Administration said crude inventories fell 5.2 million barrels last week, much more than the 1.8 million-barrel drop analysts predicted. Gasoline and distillate stocks also fell, supporting a market that has sold off in recent weeks due to persistently high US inventories. Production rose, however, and gasoline demand over the last four weeks was 2.5 percent lower than at the same time period a year ago.
Global benchmark Brent crude settled up $1.49 a barrel, or 3 percent, to $50.22 a barrel. US light crude oil ended up $1.45 higher at $47.33 a barrel. "US crude oil production is now solidly above 9.3 million barrels per day with more to come, and refined product, especially for gasoline, is oddly weak," said John Kilduff, partner at hedge fund Again Capital in New York.
"It is difficult to see how the day's gains last." Prices surged after the Organization of the Petroleum Exporting Countries agreed in November with some other producing countries to curb supply. But oil slumped in recent weeks as rising US production undermined the OPEC-led efforts to reduce a global crude glut.
Also supporting prices were comments from Algeria's energy minister that Algeria and Iraq favour extending global supply cuts when OPEC meets this month. On Monday, Saudi Arabia's oil minister Khalid al-Falih said he expected the output deal to be extended to the end of the year or possibly longer. State-owned Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June. Aramco had previously maintained supplies to important Asian customers.
Shipments data has shown signs of drawdown, with shipments from OPEC countries expected to fall about 50 million barrels in April, according to Thomson Reuters. Floating storage has started to decline in places like Singapore. "The reason why the bears have been able to control this market is we haven't seen the hard evidence; there are a lot of doubting Thomases that say there's been no drawdown," said Phil Flynn, analyst at Price Futures Group in Chicago.
OPEC member Libya said production exceeded 800,000 barrels per day (bpd) for the first time since 2014 and could rise to 1.2 million bpd later this year. Nigeria, which along with Libya is exempt from OPEC cuts, is also expected to see a jump in output soon.
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