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Oil futures ended higher Wednesday, giving up earlier declines as optimism surrounding the $2 trillion U.S. econonic stimulus package eventually helped to calm some worries about growing supply amid a price war between Saudi Arabia and Russia.
“Oil is riding the wave of record stimulus emotions,” said Phil Flynn,senior market analyst at The Price Futures Group.
“Oil is trying to balance historic demand destruction” from the coronavirus, he said. But the “stage is set for a massive oil demand surge and with record low rates and stimulus to boot, as well as a cut back in refinery runs and [capital expenditures], [that’s very bullish if you look past the near term glut,” Flynn told MarketWatch.
Weekly data from the Energy Information Administration, meanwhile, revealed a smaller-than-expected weekly climb in U.S. crude inventories, but the rise also marked a ninth weekly increase in a row. The data also showed a hefty decline in weekly gasoline production, boosting futures prices for the fuel.
West Texas Intermediate crude for May CLK20, +2.17% tacked on 48 cents, or 2%, to settle at $24.49 a barrel on the New York Mercantile Exchange after trading as low as $22.91. May Brent crude BRNK20, +1.20%, the global benchmark, rose 24 cents, or 0.9%, at $27.39 a barrel on ICE Futures Europe.
Oil found support on the back of progress on a U.S. stimulus package and a report from The Wall Street Journal that said the U.S. plans to pressure Saudi Arabia, head of the virtual Group of 20 major economies, to restrain its scheduled oil production boost.
Traders will wait to see what happens with the U.S. expected to urge the Saudis “not to produce as much as they have said they will as of April 1st,” said Tariq Zahir, managing member at Tyche Capital Advisors.
Even so, the Saudis are likely to boost production and that would lead to prices falling to “at or below the $20 level” in the weeks to come, said Zahir.
“We might see Russia come back to the table at that point,” but Russian President Vladimir Putin does “not want to look weak and we feel if they do come back to the table, it will not be until we see oil in the teens for several weeks,” he said.
Democratic and Republican lawmakers and the Trump administration reached a deal on a $2 trillion relief package aimed to tide over U.S. citizens and businesses as the economy grinds to a near halt as a result of the global COVID-19 pandemic. The deal must still pass votes in both the Senate and House. Expectations for a deal had helped lift oil futures and sent stocks soaring on Tuesday.
Still, the global demand hit from the pandemic coupled with a flood of crude unleashed by a price war between Saudi Arabia and Russia continued to put a cap on oil futures.
Read: Dismal oil demand outlook, Saudi-Russian price war lead to ‘atomic bomb’-like environment for oil
“News of increased crude availability is coming thick and fast at the moment, with the post-OPEC+ fight for market share continuing apace against a backdrop of unprecedented demand suppression,”wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Wednesday note.
The firm said its base case sees crude oversupplied by around 20 million barrels a day in April and May.
On Wednesday, oil prices saw little reaction from data from the Energy Information Administration which revealed that U.S. crude supplies rose by 1.6 million barrels for the week ended March 20.
That followed eight straight weeks of increases, but was less than the average 2.5 million-barrel increase forecast by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a fall of 1.25 million barrels.
The EIA data also showed supply declines of 1.5 million barrels for gasoline and 700,000 barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 2.4 million barrels for gasoline and 1.6 million barrels for distillates.
U.S. gasoline production fell to 8.96 million barrels per day for the week ended May 20, from 9.97 million barrels a day a week earlier, according to the EIA.
On Nymex, April gasoline RBJ20, +25.58% tacked on 23.2% to 54.68 cents a gallon, with prices stretching gains to a second straight day after dropping Monday to the lowest settlement based on records going back to 2005 for the reformulated gasoline contract.
Read: Retail gasoline prices drop to lowest since 2016
April heating oil HOJ20, +1.41% added 1.6% to $1.0978 a gallon. April natural gas NGJ20, +0.42% settled at $1.659 per million British thermal units, up 0.4%.
