Oil futures climbed toward session highs on Wednesday after U.S. government data revealed a drop in both U.S. gasoline and distillate stockpiles, rallying prices for the petroleum products, even as domestic supplies of crude posted a second straight weekly climb.
Prices were headed higher even before the supply data, with U.S. benchmark crude poised to halt a five-session skid.
Unverified claims of progress toward coronavirus vaccines and treatments that could stem the spread of the Asian outbreak that has crushed expectations for demand from China, provided support for oil.
Reports that the Organization of the Petroleum Exporting Countries and its allies are considering deeper production cuts at a technical meeting that concludes Wednesday also buoyed oil.
“The concern is a demand situation, especially from China,” with a surplus of oil that could develop rather quickly,” said Tariq Zahir, managing member at Tyche Capital Advisors. “OPEC may take action, but the main concern is on several fronts as the demand issue from China looks inevitable” and the further spread of the virus could further influence demand.
West Texas Intermediate crude for March delivery CLH20, +3.35% was trading $1.92, or 3.9%, higher at $51.53 a barrel on the New York Mercantile Exchange. The commodity entered a bear market on Monday, usually defined as a decline from a recent peak of at least 20%.
April Brent crude BRNJ20, +3.22% gained $2.05, or 3.8%, to $56.01 a barrel on ICE Futures Europe, following its lowest settlement since Dec. 31, 2018 on Tuesday. The international benchmark also entered a bear market on Monday.
Oil prices extended earlier gains after weekly data from the Energy Information Administration Wednesday revealed that U.S. crude supplies rose for a second straight week, but stockpiles of gasoline and distillates declined.
The EIA said U.S. crude supplies rose by 3.4 million barrels for the week ended Jan. 31. Analysts polled by S&P Global Platts forecast a rise of 3 million barrels, while the American Petroleum Institute on Tuesday reported a climb of 4.2 million barrels.
Oil inventories grew “as refining activity remained in check — holding below the 16 million barrel-per-day mark for a second week,” said Matt Smith, director of commodity research at ClipperData.
Gasoline inventories, however, “dropped for the first week in thirteen…while distillates fell for a third consecutive week, as implied demand edged higher,” Smith said.
The EIA data showed an unexpected supply decline of 100,000 barrels for gasoline, while distillate stocks fell by 1.5 million barrels. The S&P Global Platts survey had shown expectations for an increase in gasoline supplies of 1.9 million barrels for gasoline, but distillates were forecast to fall by 100,000 barrels.
On Nymex, March gasoline RBH20, +3.97% climbed by 4.4% to $1.6541 a gallon and March heating oil HOH20, +3.95% added 4.6% to $1.5099 a gallon.
March natural gas NGH20, -0.96% traded at $1.858 per million British thermal units, down 0.8%, ahead of Thursday’s EIA weekly update on U.S. supplies of the fuel. A survey of analysts conducted by S&P Global Platts forecast a drop of 126 billion cubic feet, on average, for natural-gas stockpiles.
Meanwhile, China’s s Changjiang Daily reported that researchers at Zhejiang University had zeroed in on two drugs to successfully fight the coronavirus, while Sky News reported progress toward a vaccine.
The reports come as the death toll from the novel coronavirus rose to 490 in mainland China and the number of new cases increased to 24,324.
Still, the World Health Organization has said that there are “no known effective therapeutics” against the virus, in response to the media reports.
“Oil’s bloodbath could be over after researchers announce the breakthrough in creating a coronavirus vaccine,” wrote Edward Moya, senior market analyst at Oanda, in a Wednesday research report. “Energy traders might start pricing a return to normalcy in Chinese demand for crude in the second quarter.”
Sentiment for crude had been weak due to the concerns about the impact of coronavirus on appetite for the commodity amid fears that the market was oversupplied.
Recent reports indicated that OPEC, led by Saudi Arabia, were considering deeper production cuts to stabilize prices.
Among the scenarios under discussion at a two-day technical meeting held in Vienna, which is expected to conclude Wednesday, are output cuts of 800,000 barrels to 1 million barrels a day, according to The Wall Street Journal.
“No one knows how much worse the Chinese demand for oil could get and until we have some real solid feel of that. OPEC is just shooting in the dark by saying it’s going to cut X many barrels,” said Barani Krishnan, senior commodities analyst at Investing.com.
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