Oil prices surged on Wednesday after U.S. crude stockpiles grew less than expected and gasoline posted a surprise draw, adding to optimism for an improvement in demand as some European countries and U.S. cities move to ease coronavirus lockdowns.
Crude prices have been under pressure as fuel demand worldwide has dropped by roughly 30%. Major oil producing-nations agreed in mid-April to cut output by nearly 10 million barrels per day, while shale producers and oil majors are also reducing production.
Brent crude futures were up $2.23, or 11%, at $22.69 a barrel by 12:05 p.m. EDT (1605 GMT). U.S. West Texas Intermediate (WTI) crude futures soared $3.58, or 29%, to $15.92 a barrel following a plunge into negative territory last week.
"The report was hopeful - there was modest uptick in gasoline demand and refinery utilization," said John Kilduff, founding partner at New York hedge fund Again Capital. "The worst may be behind us in terms of demand destruction."
U.S. crude oil inventories swelled by 9 million barrels last week to 527.6 million barrels, about 7 million barrels below their record high, the Energy Information Administration, but slightly less than analysts' expectations in a Reuters poll for a 10.6 million-barrel rise.
More outstanding in the weekly data was the drawdown in U.S. gasoline stockpiles of 3.7 million barrels from record highs last week despite a rebound in refinery output as fuel demand picked up modestly.
Gasoline demand is still down 44% over the past four weeks from the year-ago period, but the week's drawdown suggests that the consumption declines may be leveling off. Overall fuel demand overall has dropped by 28% in the last four weeks.
"What stood out is the gasoline stockpiles - the market is taking heart from that," said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
While U.S. storage is rapidly filling, crude production cuts by U.S. shale producers - estimated by consultants Rystad Energy at 300,000 barrels per day (bpd) for May and June - should help slow flows into tanks.
Regulators in Texas, the biggest U.S. oil producing state, will hold a vote on May 5 on whether to enact output cuts.
Officials in the states of North Dakota and Oklahoma are also examining ways to legally allow output cuts.
That would add to production cuts of almost 10 million bpd agreed by the Organization of the Petroleum Exporting Countries and other large producers including Russia.
Countries that have social distancing measures in place now account for more than 90% of last year's oil demand, Morgan Stanley research showed.
Hopes for some recovery in demand put a floor under oil prices after two days of selling in June contracts by exchange-traded funds looking to avoid the extreme volatility that hit the WTI May futures contract last week.
"The other thing coming through is more detail and a louder groundswell towards plans for removing COVID restrictions, particularly in Europe," said Lachlan Shaw, head of commodity research at National Australia Bank in Melbourne