Oil rose after the US reported the biggest jump in gasoline demand since last year, offering a glimmer of hope that consumption could gradually return as major producers continue to cut output to counter a global glut.
West Texas Intermediate futures surged as much as 36% Wednesday. U.S. gasoline stocks fell by 3.67 million barrels compared to an estimated build of 2.49 million, according to the US Energy Information Administration. Weekly gasoline supplied, an indicator of demand, rose by 549,000 barrels, the most since May.
“That was a nice surprise to the market,” Nick Holmes, portfolio manager at Tortoise, said regarding better-than-expected results for crude inventory and gasoline supply in the EIA report.
Valero Energy Corp. said in its first quarter earnings conference call that it sees gasoline demand to recover gradually, along with jet fuel at a slower pace. The company sees the best recovery in demand in the Midwest.
“That will be the key driver over the next 30-60 days as we see states start to open up and we see demand bounce back,” Holmes said. He said that he doesn’t see jet fuel bouncing pack to pre-coronavirus levels until 2021.
The agency also reported a smaller-than-expected 8.99 million-barrel increase in national crude stockpiles and a 3.64 million-barrel build at Cushing, Oklahoma, the delivery point for futures.
Russian oil companies will cut output by about 19% from February levels, the nation’s Energy Minister, Alexander Novak told the Interfax news agency. Nigeria, which has been struggling to sell its oil even at $10 a barrel, will ship the lowest volume of its key Qua Iboe crude grade since 2016 in May and June.
There have been tentative signs of a recovery in European physical oil markets. Key pricing contracts in the North Sea and Russia have rallied in recent days, though there are still concerns that the world is on the brink of filling its storage capacity. Major producers were due to start output cuts on May 1, but some, including Saudi Arabia, are now curbing output early.
(By Olivia Raimonde, with assistance from Alex Longley, Dan Murtaugh and Sharon Cho)