Oil extended gains after closing near a five-month high in New York on Wednesday as U.S. crude stockpiles declined more than expected, offsetting expanding fuel inventories and softer demand. Crude stockpiles slid to the lowest level since April, falling more than double the median estimate in a Bloomberg survey. However, government data also showed gasoline and distillate inventories rose by a combined 2 million barrels last week as the summer driving season nears its end, while demand for motor fuel stagnated, highlighting the uneven recovery from a virus-driven crash.
While oil is starting to rally, OPEC+ and some U.S. producers are set to test the market by returning supply after prices recovered from a plunge below zero in April. Rising coronavirus infections had anchored crude near $40 a barrel since early June, and while many major economies are struggling to control the outbreak, progress on a possible vaccine is only inching forward.
“This is going to be a slow grind higher for oil,” said Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda. “The world is still definitely in a recession and there are very real worries about the trajectory of the U.S. economy because Covid-19 is nowhere near controlled.”
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U.S. crude stockpiles fell by 7.37 million barrels for a second weekly decline through July 31, the Energy Information Administration reported Wednesday. The median estimate in a Bloomberg survey had forecast a decrease of 3.35 million. However, inventories at the storage hub of Cushing, Oklahoma, rose for a fifth week to the highest level since May.
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