Analysts reiterate their view that demand is "red hot": File Image/Pixabay
Analysts who warned that crude trading would be volatile in the near term weren't joking: after a recent 7 percent plunge in prices followed by a modest rebound, oil on Wednesday surged over 4 percent, despite a rise in U.S. inventories, and supported by the greater knowledge that the global market remains tight.
Brent rose $2.88, or 4.2 percent, to settle at $72.23 per barrel; West Texas Intermediate rose $3.1, or 4.6 percent, to settle at $70.30 per barrel.
Pundits cited the recent deal between allies and the Organization of Petroleum Exporting Countries (OPEC) to boost supply by 400,000 barrels per day (bpd) from August through December to help explain Wednesday's trading mentality.
Matt Sallee, portfolio manager, Tortoise
The market's really being driven by macro factors
Andy Lipow, president of Lipow Oil Associates, said, "Overall the OPEC agreement has crystallized what the market should expect as to the restoration of production; however, even according to OPEC+ numbers, it's not enough to stem the overall world oil inventory decline, and to me, that is giving support to the market."
Still, for investors who up until this session were convinced that demand would be ruined by rising Covid infections, it still doesn't explain why OPEC was enough to offset any concern of news on Wednesday from the Energy Information Administration that crude inventories rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels (analysts had expected a 4.5 million-barrel drop).
Presumably they took solace in the fact that gasoline and distillate inventories posted draws of 121,000 barrels and 1.3 million barrels; they may also have been heartened by Baker Hughes, which said shale drilling in North America is going to slow down in the second half of this year, even with crude prices at levels that would normally lure back explorers.
Matt Sallee, a portfolio manager at Tortoise, said, "The market's really being driven by macro factors," and he added that oil product demand in the U.S. at least is s "strong" and "steady": "The U.S. economy is red-hot, and that's flowing through to demand."
Also reported on Wednesday, China was revealed as another country eager to put a lid on inflation helped along by high oil prices: according to people familiar with the situation, that country's Strategic Petroleum Reserve supplied about 3 million tons, or 22 million barrels, to processors in a bid to cool prices.
The disclosure illustrates how seriously Beijing sees rising raw material costs and an accompanying risk of broader inflation in living costs.