Oil Rallies on Crude Stock Draw

NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied Wednesday afternoon on government data that showed crude oil stocks in the United States unexpectedly declined last week and renewed hope that a deal could be reached by major oil producers later this month to freeze oil production at January levels.

"Diesel is [also] rallying as traders are selling gasoline and buying diesel since they had been long gas and short diesel in anticipation of a strong gasoline season," said Andy Lipow, president of Lipow Oil Associates in Houston.

"I am hearing that the airlines and farmers are hedging on diesel and jet fuel," added analyst Phil Flynn at Price Futures in Chicago.

Energy Information Administration data for the week-ended April 1 was bullish for crude and bearish for products, with demand lower for gasoline and distillates. The data also showed unexpected increases in gasoline and distillate supplies.

NYMEX May West Texas Intermediate crude oil futures settled $1.86 or 5.2% higher at $37.75 bbl, off a three-day high at $37.90. The June Brent crude futures contract on the IntercontinentalExchange advanced $1.97 or 5.2% to a $39.84 bbl settlement, off a three-day high at $39.94.

NYMEX May ULSD futures spiked 6.57cts or 6.0% to a $1.1403 gallon settlement, off a two-day high of $1.1450, while May RBOB futures climbed 1.69cts to a $1.3947 gallon settlement, off a $1.4089 gallon three-day high.

On Wall Street, equities rallied as well while the dollar fell after minutes of the Federal Reserve's March meeting bolstered recent comments by Fed Chair Janet Yellen. The minutes showed most Fed officials favored keeping rates low because of concerns about the risks posed by the global slowdown to the U.S. economy.

EIA data showed a U.S crude stock draw of 4.9 million bbl to 529.9 million bbl versus an expected build of 3.0 million bbl for the week-ended April 1. The American Petroleum Institute reported a crude stock draw of 4.3 million bbl for the week late Tuesday.

EIA reported a gasoline stock build of 1.4 million bbl versus an expected stock draw of 1.5 million bbl. API reported a draw of 116,000 bbl for the fuel.

EIA reported a distillate stock build of 1.8 million bbl versus an expected stock draw of 300,000 bbl. API reported an increase of 2.7 million bbl for the fuel.

There was renewed hope the Organization of Petroleum Exporting Countries and non-OPEC members would freeze output at their January level despite comments made recently to the contrary by Saudi Arabia. This comes after Kuwait's OPEC governor, Nawal al-Fuzai, said Tuesday that a deal would likely be reached at a scheduled April 17 meeting even without Iran.

George Orwel can be reached at george.orwel@dtn.com