MW: Oil rallies 5% on economic optimism, inventories
Oil futures rallied nearly 5% Thursday ahead of a three-day holiday weekend, reducing their weekly loss as a smaller-than-expected increase in inventories and an early release of profits from Wells Fargo & Co. boosted investor sentiment.
Meanwhile, natural-gas futures reversed earlier gains after data showed U.S. inventories rose last week more than expected.
Crude oil for May delivery rose $2.42, or 4.9%, to $51.80 a barrel on the New York Mercantile Exchange in late morning trading. It rallied more than 5% earlier to as high as $54. Thursday's rally reduced oil's weekly loss to less than 2%.
Helping boost investor optimism Thursday, San Francisco-based Wells Fargo said it expects to record profits for the first quarter of roughly $3 billion, or 55 cents a share. See full story on Wells Fargo.
U.S. stocks rallied after the bank's statement. See U.S. Market Snapshot.
Meanwhile, all of the 19 U.S. banks that have been subject to government stress tests to determine their viability will pass the review, the New York Times reported Thursday, citing unidentified government officials.
"The stocks are rocking. Wells Fargo is lending money and the banks are passing the stress test so the hopes for oil demand are rising," said Phil Flynn, vice president at Alaron Trading. "The mood is joyous and that is spilling over into the oil."
The fact that crude has broken the psychologically important level of $50 a barrel also helped improve investor sentiment, said analysts at Commerzbank.
In natural gas trading, May natural-gas futures fell 6.5 cents, or 1.8%, to $3.566 per million British thermal units.
U.S. stockpiles rose 20 billion cubic feet in the week ended April 3, the Energy Information Administration reported. Analysts surveyed by Platts had expected an increase of 11 billion cubic feet to 16 billion cubic feet.
Inventories data
Also helping crude move higher, the Energy Information Administration reported Wednesday U.S. crude inventories rose 1.7 million barrels in the week ended April 3. Analysts had expected an increase of more than 2 million barrels.
"Crude is in a solid trading range right now and you are seeing some technical buying," said Zachary Oxman, managing director at TrendMax Futures.
"However, I don't think the [inventories] numbers were enough to drive the market this much, so it seems to me that we were seeing a bit of a trading rally," he added.
Despite a smaller-than-expected increase in inventories, stockpiles in the U.S., the world's biggest oil consumer, still stood at the highest level in 16 years. Meanwhile, the EIA also reported petroleum demand over the last four-week period fell 4.4% from a year ago.
"The data is a clear indicator that the recession has changed consumer behavior," said James Williams, an economist at energy research firm WTRG Economics.
Also on Thursday, May reformulated gasoline rose 5.49 cents, or 3.8%, to $1.4945 a gallon and May heating oil gained 4.04 cents, or 2.9%, to $1.4385 a gallon.
