Oil prices rose Wednesday after industry data showed a surprise decline in U.S. stockpiles, potentially signaling a rare reprieve from the flood of oil still flowing into storage despite low prices and a heavy glut.
Prices have been rising steadily since late Tuesday when the American Petroleum Institute reported a draw of 3.6 million barrels from U.S. stockpiles. The data jolted a market that expects government data to show the opposite.
Analysts surveyed by The Wall Street Journal expect the U.S. Energy Information Administration to report later this morning that domestic crude stockpiles rose for the 13th time in 14 weeks. The average forecast of 10 analysts put the increase at 600,000 barrels. The analysts also expect growing inventories of gasoline and other petroleum products for the week ended Dec. 18.
The EIA will release its official numbers at 10:30 a.m. EST.
Light, sweet crude for February delivery gained 90 cents, or 2.5%, to $37.04 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 79 cents, or 2.2%, to $36.90 a barrel on ICE Futures Europe.
“The drawdown in API (data) seems to have fueled another leg up,” said Gene McGillian, an analyst at Tradition Energy. “And with the length that we’ve dropped, it’s more expected than unexpected that we’d see a reverse.”
On Monday, Brent fell to lows untouched since 2004 and West Texas Intermediate crude sank below $34 a barrel for the first time since 2009.
Mr. McGillian and others said that has opened the door for the many traders who made bearish bets on oil prices to cash them out and take profits as they settle their books before the Christmas holiday and the end of the year. Traders have to buy back contracts to close out bearish positions, and that can cause prices to rise.
“The market had become oversold technically and long-term investors are looking for reasons to accept partial profits out of bearish strategies prior to year’s end,” Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates, said in a note.
Both said the market is oversupplied in the near term, with concerns about coming production from Iran, and shaky economies in China, Europe and emerging markets. That is likely to keep a recovery at bay, Copenhagen-based Global Risk Management said.
A recovery after a similar plunge in 2008 got help by production cuts from the Organization of the Petroleum Exporting Countries and the U.S. Federal Reserve lowering the value of the dollar through a quantitative-easing program—the exact opposite of today’s situation.
The prospect of continued low oil prices has led market observers to question how long some producers can survive sub-$40 oil. Some believe that large-scale production cuts are unavoidable at current prices, the only question being how long before they start to make an impact.
“The oil industry, be it OPEC or non-OPEC, is simply not functional at current prices, and Angola, Nigeria, Libya, Iraq and Venezuela are all struggling with poor finances,” London-based Energy Aspects said. “This will ultimately lead to sharply lower supplies, but unlikely until” the fourth quarter of 2016.
Gasoline futures gained 3.5% to $1.2163 a gallon. Diesel futures rose 2.4% to $1.1134 a gallon.
