Oil prices gained about 3% on Wednesday as another U.S. crude stock drawdown indicated tight supplies and investors worried about new Western sanctions against Moscow with Russian forces continuing to bomb the outskirts of Ukraine’s capital.
On Tuesday, Russia promised to scale down operations around Kyiv in what the West dismissed as a ploy to regroup by invaders suffering heavy losses.
“After being fooled once, many traders that sold contracts in response to the peace talks are unlikely to make the same mistake the next time a Russia-Ukraine meeting is followed by optimistic comments,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
Brent futures rose $3.22, or 2.9%, to settle at $113.45 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $3.58, or 3.4%, to settle at $107.82.
U.S. crude stockpiles fell by a bigger-than-expected 3.4 million barrels last week, cutting inventories in the world’s top consumer to 410 million barrels, their lowest since September 2018, government data showed. ,
“U.S. crude inventories have shown another draw despite production ticking higher and yet one more solid SPR (Strategic Petroleum Reserve) release into commercial inventories,” said Matt Smith, lead oil analyst at Kpler, noting the crude draw was driven by rising refining activity.
After seven weeks of holding steady, U.S. crude output inched up 100,000 barrels per day (bpd) last week to 11.7 million bpd, while crude stocks in SPR fell to their lowest since May 2002, and Gulf Coast refinery utilization rose to its highest since January 2020.
Price gains were limited by surprise builds in U.S. gasoline and distillate stocks last week and lower demand for both products, traders said.
The United States and its allies plan new sanctions on more sectors of Russia’s economy, including military supply chains.
In response to possible Russian gas supply cuts, Germany triggered an emergency plan to manage gas supplies. Other European countries also took steps to conserve gas.
Sources, however, said Russia plans to keep the contract currency for gas exports to Europe unchanged but will seek final payment in roubles as one of the options to switch the currency of gas trade.
Keeping the market tight, major oil producers are likely to stick to their scheduled output target increase of about 432,000 bpd when OPEC+ – the Organization of the Petroleum Exporting Countries and allies including Russia – meets on Thursday, several sources close to the group said.
U.S. data, meanwhile, showed private employers maintained a brisk pace of hiring in March, leading investors to worry that a possible rapid rise in interest rates could hurt economic growth and fuel demand.