As crude oil storage at the Cushing hub in Oklahoma fell an estimated 5.5 million barrels this week, oil futures on Wednesday finished at their highest level in nearly 10 weeks.
July West Texas Intermediate rose $1.53 or 4.8% to settle at $33.49 a barrel on the New York Mercantile Exchange. It was the highest finish since March 10 based on the front-month contracts according to Dow Jones Market Data.
Prices apparently rose in response to word from the Energy Information Agency that crude stocks in Cushing had dropped more than 5 million barrels this week, a move that eased concerns that had soared in recent weeks about where to store all the unwanted oil.
“Who would have thought that only a few weeks after hitting sub-zero, oil prices would stage a solid recovery back towards the $30 region?” said Lukman Otunuga, senior research analyst at FXTM. On the eve of the expiration of the May WTI contract, futures prices on April 20 settled at a negative price, implying that investors would need to pay buyers to take delivery of crude oil amid dwindling storage space.
“With economies easing lockdown measures, oil could edge higher in the near term,” Otunuga told MarketWatch. “However, gains may be capped by global growth fears and renewed U.S.-China trade tensions.”
Meanwhile, global benchmark Brent crude for July delivery picked up $1.10, or 3.2%, at $35.75 a barrel on ICE Futures Europe—the highest finish since March 11.
The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 5 million barrels for the week ended May 15, marking a second weekly decline in a row. That compared with a forecast by analysts polled by S&P Global Platts for an average increase of 2.4 million barrels. The American Petroleum Institute on Tuesday reported a decline of 4.8 million barrels.
“The crude oil stock draw was unexpected, but it is attributable to declines in both imports and production, while refinery inputs were higher,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. “Overall, storage isn’t filling up as quickly as expected with the steeper production cuts rebalancing the physical market.”
An agreement between the Organization of the Petroleum Exporting Countries and their allies to cut some 9.7 million barrels a day in oil through the end of June have helped to stem a flood of crude against a backdrop of demand that had been declining, hurt by lockdowns to stop the spread of COVID-19.
Production in the U.S. has also declined, with the EIA on Wednesday reporting that total oil output fell by 100,000 barrels a day to 11.5 million barrels a day last week. In a separate report issued Monday, the EIA forecast further a decline in domestic shale-oil production.