Oil Prices Soar After Inventory Data 

Chinese economic gauge also shows quicker-than-expected improvement

Oil prices rallied Wednesday on an unexpected decline in U.S. crude stockpiles.

Light, sweet crude for May delivery settled up $1.86, or 5.2%, at $37.75 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.97, or 5.2%, to $39.84 a barrel on ICE Futures Europe.

U.S. crude-oil supplies fell by 4.9 million barrels in the week ended April 1, the Energy Information Administration said Wednesday. The prior week, crude stockpiles stood at the highest level in more than 80 years. Analysts surveyed by The Wall Street Journal had expected the EIA to report a 3.3-million-barrel rise.

The inventory drawdown was due to a decline in imports and an increase in refinery activity. Refineries ran at 91.4% of capacity last week, the EIA said, up from 90.4% in the prior week.

“Refineries are ramping up to meet gasoline demand” this summer, when drivers are expected to take advantage of cheap gasoline and travel more, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. “Refineries are definitely, no doubt about it, using more crude oil than they were last week.”

Oil inventories around the world stand near record highs, and many analysts and investors say that stockpiles have to start declining steadily before prices can rise further.

“One week does not make a trend, but hopefully we’ll see this continue and finally see this excess inventory worked off,” said Chip Hodge, senior managing director at John Hancock Financial Services, who oversees about $7 billion in oil and natural gas-related investments. “That will enable prices to rebound.”

But supplies of gasoline and distillates, including heating oil and diesel fuel, unexpectedly rose, pushing total stockpiles of crude oil and petroleum products to a record high of 1.4 billion barrels.

The drop in crude-oil imports was due to fog in the Houston Ship Channel, and imports are likely to rise again next week, said Matt Smith, director of commodity research at shipping tracker ClipperData.

The price gains are “a knee-jerk reaction to a bullish headline crude number,” Mr. Smith said. “But given that we should see a return to [inventory] builds next week, it seems like this could be a temporary move.”

U.S. crude production fell by 14,000 barrels a day in the week but held above 9 million barrels a day, the EIA said. Investors are closely watching the 9-million-barrel mark. This week’s data “would imply that we’re going to slide below 9 million next week,” Mr. Yawger said. “That’s positive for the market.”

In China, a private gauge of service activity showed a faster pace of expansion last month following moves by Beijing to prop up growth after a shaky start of the year. China is the world’s second largest oil consumer.

The Caixin China services purchasing managers index rose to 52.2 in March from 51.2 in February, Caixin Media Co. and research firm Markit said overnight. A reading above 50 indicates a month-to-month expansion, while a level below that points to a contraction.

Oil prices have gained in recent months on speculation of a possible production freeze among major producing nations. However, the rally stalled last week after Saudi Arabia said Friday it would back out unless Iran was on board. Tehran plans to increase output until it reaches pre-sanction levels of around 4 million barrels a day.

Kuwait, a heavyweight in the Organization of the Petroleum Exporting Countries, expressed confidence Tuesday that players will agree to limit their output when OPEC and non-OPEC producers, including Russia, meet in Doha, Qatar, on April 17.

“Market watchers will be keeping their ears sharp until the suspense of a possible production freeze is over,” said Barnabas Gan, an OCBC commodities analyst.

Gasoline futures settled up 1.69 cents, or 1.2%, at $1.3947 a gallon. Diesel futures rose 6.57 cents, or 6.1%, to $1.1403 a gallon.

Source: WSJ

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