NEW YORK – Oil prices climbed more than 4% on Wednesday on signs of improving demand and a drawdown in U.S. crude inventories, but gains were capped by worries over the economic fallout from the coronavirus pandemic and weak refining margins.
Brent crude futures LCoc1 were up $1.38, or 3.98%, at $36.03 per barrel at 10:54 a.m. ET (1454 GMT) while U.S. West Texas Intermediate (WTI) July crude futures CLc1 were up $1.38, or 4.32%, at $33.34 a barrel. Both benchmarks rose more than 5% during the session.
The WTI June contract expired on Tuesday at $32.50 a barrel, up 2.1%, avoiding the chaos of last month’s May expiry, when prices sank well below zero, as storage across the U.S. filled rapidly.
U.S. crude inventories fell by 5 million barrels in the week to May 15 to 526.5 million barrels, Energy Information Administration data showed, compared with analysts’ expectations in a Reuters poll for a 1.2 million-barrel rise.
Crude stocks at the Cushing, Oklahoma, delivery hub fell by 5.6 million barrels in the last week, EIA said.
The easing of lockdown restrictions worldwide is boosting demand for fuels, while initial shipping data shows that compliance with oil production cuts from the Organization of the Petroleum Exporting Countries and its allies has been strong so far.
But weak crude refining profits persist, which could delay a recovery in oil demand. Refiners hope the easing of lockdowns will boost gasoline demand.
U.S. gasoline and distillate inventories rose last week, EIA data showed.
“I see product builds that can take away a little bit of the bullish direction from the report … we need to see more signs that rebalancing is taking place, primarily through more demand,” said Gene McGillian, Director of Market Research at Tradition Energy in Stamford, Connecticut.
Lingering concerns about the economic fallout from the coronavirus pandemic, especially in the United States which is the world’s biggest oil consumer, also kept a lid on gains.
U.S. Federal Reserve Chair Jerome Powell said on Tuesday layoffs by state and local governments will slow the U.S. economic recovery.
“Both WTI and Bent have already recovered what levels they realistically could over the last three weeks and have now both stabilized between 30 and 35 USD,” said Rystad Energy’s senior oil markets analyst Paola Rodriguez Masiu.
“From now on, unless there is a major event that will turn the table in the supply-balance relationship (such as a new OPEC decision or more extended cuts, possible new lockdowns that affect demand), we expect prices to stay around the current levels.”