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Oil futures finished higher on Wednesday after U.S. government data revealed a drop in both U.S. gasoline and distillate stockpiles, rallying prices for the petroleum products, even though domestic supplies of crude posted a second straight weekly climb.
Prices were climbing even before the supply data, and U.S. benchmark crude halted a five-session skid.
Unverified claims of progress toward coronavirus vaccines, which could stem the spread of the Asian outbreak that has crushed expectations for demand from China, provided support for oil.
Reports that the Organization of the Petroleum Exporting Countries and its allies were considering deeper production cuts at a technical meeting in Vienna also buoyed oil, though that meeting has reportedly ended with no announcement, but with plans to reconvene for an unscheduled third day on Thursday.
“The concern is a demand situation, especially from China,” with a surplus of oil that could develop rather quickly, said Tariq Zahir, managing member at Tyche Capital Advisors. “OPEC may take action, but the main concern is on several fronts as the demand issue from China looks inevitable,” he said, adding that further spread of the virus could pressure demand even lower.
West Texas Intermediate crude for March delivery CLH20, +2.78% rose $1.14, or 2.3%, to settle at $50.75 a barrel on the New York Mercantile Exchange. The commodity entered a bear market on Monday, usually defined as a decline from a recent peak of at least 20%.
April Brent crude BRNJ20, +0.25% gained $1.32, or nearly 2.5%, to $55.28 a barrel on ICE Futures Europe, following its lowest settlement since Dec. 31, 2018 on Tuesday. The international benchmark also entered a bear market on Monday.
Oil prices extended earlier gains after weekly data from the Energy Information Administration Wednesday revealed that U.S. crude supplies rose for a second straight week, but stockpiles of gasoline and distillates declined.
The EIA said U.S. crude supplies rose by 3.4 million barrels for the week ended Jan. 31. Analysts polled by S&P Global Platts forecast a rise of 3 million barrels, while the American Petroleum Institute on Tuesday reported a climb of 4.2 million barrels.
Oil inventories grew “as refining activity remained in check — holding below the 16 million barrel-per-day mark for a second week,” said Matt Smith, director of commodity research at ClipperData.
Gasoline inventories, however, “dropped for the first week in thirteen…while distillates fell for a third consecutive week, as implied demand edged higher,” Smith said.
The EIA data showed an unexpected supply decline of 100,000 barrels for gasoline, while distillate stocks fell by 1.5 million barrels. The S&P Global Platts survey had shown expectations for an increase in gasoline supplies of 1.9 million barrels for gasoline, but distillates were forecast to fall by 100,000 barrels.
On Nymex, March gasoline RBH20, +3.81% climbed by 3% to settle at $1.4863 a gallon and March heating oil HOH20, +4.24% added 3.9% to $1.6454 a gallon.
March natural gas NGH20, -0.11% ended at $1.861 per million British thermal units, down 0.6%, ahead of Thursday’s EIA weekly update on U.S. supplies of the fuel. A survey of analysts conducted by S&P Global Platts forecast a drop of 126 billion cubic feet, on average, for natural-gas stockpiles.
Meanwhile, China’s Changjiang Daily reported that researchers at Zhejiang University had zeroed in on two drugs to successfully fight the coronavirus, while Sky News reported progress toward a vaccine.
The reports come as the death toll from the novel coronavirus rose to 490 in mainland China and the number of new cases increased to 24,324.
Still, the World Health Organization has said that there are “no known effective therapeutics” against the virus, in response to the media reports.
“Oil’s bloodbath could be over after researchers announce the breakthrough in creating a coronavirus vaccine,” wrote Edward Moya, senior market analyst at Oanda, in a Wednesday research report. “Energy traders might start pricing a return to normalcy in Chinese demand for crude in the second quarter.”
Sentiment for crude had been weak due to the concerns about the impact of coronavirus on appetite for the commodity amid fears that the market was oversupplied.
Recent reports indicated that OPEC, led by Saudi Arabia, and its allies, together known as OPEC+, were considering deeper production cuts to stabilize prices. Among the scenarios under discussion at a technical meeting held in Vienna are output cuts of 800,000 barrels to 1 million barrels a day, according to The Wall Street Journal.
However, OPEC+ delegates will reconvene on Thursday, Herman Wang, a managing editor at S&P Global Platts tweeted, citing comments from two delegates leaving the technical meeting that was supposed to end Wednesday.
Devika Kumar, energy markets correspondent for Reuters, citing a source familiar with the matter, tweeted that Russia is not supporting deeper output cuts and prefers an extension of current cuts instead.
