Crude Skyrockets over 4% on High Inventory Draw, Tropical Storm

But OPEC once again is seen as supporting prices in the long term: File Image/Pixabay

Crude trading, often characterized as a roller coaster, produced an outright whiplash effect on Wednesday as lower than expected U.S. inventory draws suddenly shook traders out of their doldrums and caused the commodity to gain over 4 percent per barrel, the best showing in seven weeks.

Brent shot up $2.88, or 4.49 percent, to $67.04 per barrel, while West Texas Intermediate climbed $2.60, or 4.5 percent, to $60.43 per barrel.

But as in many past sessions, the motivation for the gains was based on a factor that can best be described as fleeting: U.S. crude stocks fell 9.5 million barrels in the week to July 5, more than triple the 3.1 million-barrel draw analysts had expected as refineries ramped up output, according to the Energy Information Administration.

Equally fleeting is that crude on Wednesday was also supported by the evacuation of several Gulf of Mexico drilling platforms in advance of a tropical storm, which will temporarily curb production.

Unsurprisingly, the market also benefited from a familiar conflict: "The ongoing geopolitical tensions between the United States and Iran continue to add a still unquantifiable level of support," said Ole Hansen, head of commodity strategy at Saxo Bank.

While storms and inventory draws may be forgotten as early as by end of this week, also keeping a lid on inventories in the longer term is the Organization of the Petroleum Exporting Countries' (OPEC) deal to extend its production cuts until the end of the first quarter of 2020.

Thamer Ghadhban, oil minister for Iraq, said on Wednesday that the initiative will not only lower stockpiles but help stabilize the market and address price volatility.

When asked about OPEC's position on prices, Ghadhban replied that the cartel is seeking prices that are fair to consumers and producers, and that $70 per barrel or higher was generally deemed to be acceptable.