Oil Escapes Holding Pattern With 5% Surge As Traders Embrace Strong Demand Data

The persistent predictions of demand recovery coupled with strong oil consumption numbers from the U.S. finally cut through the pessimism gripping traders of late, and as a result crude prices on Wednesday soared by almost 5 percent.

After the Energy Information Administration disclosed that U.S. crude inventories fell by 5.9 million barrels last week, exceeding forecasts for a 2.9 million-barrel drop, Brent rose $2.91, or 4.6 percent, to settle at $66.58 per barrel; West Texas Intermediate ended $2.97, or 4.9 percent, higher at $63.15.

The EIA also reported that gasoline supplied in latest week (indicating the U.S. consumption of the fuel) rose to 8.9 million barrels per day (bpd), the highest since August.

Also supporting prices was a report from the International Energy Agency predicting global supply and demand were set to rebalance in the second half of the year and that an additional 2 million bpd may be required to meet expected demand.

The report stated, “The massive overhang in global oil inventories that built up during last year’s COVID-19 demand shock is being worked off, vaccine campaigns are gathering pace and the global economy appears to be on a better footing.”

This, combined with the Organization of the Petroleum Exporting Countries (OPEC) earlier stating that it expects global demand to rise by 5.95 million bpd in 2021, caused analysts to rejoice: “It really looks like we’re getting a return to some more solid demand numbers and that should keep us going,” said Phil Flynn, senior market analyst at Price Futures Group Inc.

John Kilduff, founding partner at Again Capital, added, “That IEA report is one of the best ones we’ve seen them publish in awhile in terms of being optimistic about the continued rebound in demand.”

Wednesday also saw Scott Sheffield, CEO of Pioneer Natural Resources, predicting that oil will rise by $5-$10 in the next few weeks: he told Bloomberg television that "I've been very optimistic about what's going on the OPEC, vaccinations especially in the U.S....I still expect another 5 million barrel pickup in demand."

In summarizing Wednesday's crude trading activity, Bill O’Grady, executive vice president at Confluence Investment Management, said, “There’s always bearish factors in any market, but now that we’ve broke out to the upside, it likely means we’re going to retest the old highs, if not go through them.”