Oil prices experienced a significant surge on Wednesday, rising by 3% to achieve their highest settlement in 2023. This rally was driven by concerns of tight global supplies and a sharp decline in U.S. crude stocks.
Brent crude futures closed up $2.59, or 2.8%, at $96.55, briefly surpassing the $97 per barrel mark during the trading session.
U.S. West Texas Intermediate crude futures (WTI) climbed $3.29, or 3.6%, to $93.68, with the session high exceeding $94.
Government data revealed that U.S. crude stocks decreased by 2.2 million barrels last week, reaching 416.3 million barrels. This drop far exceeded the expectations of analysts, who had anticipated a 320,000-barrel reduction in a Reuters poll.
Crude stocks at Cushing, Oklahoma, the key delivery point for U.S. crude futures, fell by 943,000 barrels during the week, bringing the total to just under 22 million barrels. This marks the lowest level since July 2022.
Andrew Lipow, President of Lipow Oil Associates, pointed to the role of storage numbers in driving the market up. Concerns have been growing about the remaining oil supply at Cushing and the possibility of it falling below minimum operational levels as stockpiles continue to decline.
The tight supply situation in the oil market has been exacerbated by production cuts. Saudi Arabia and Russia, along with other OPEC+ allies, have implemented production cuts of 1.3 million barrels per day until the end of the year.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that the global energy market will remain tight until a decision is made to increase production.
Time spreads reflected the tight supply conditions, with front-month Brent futures trading at a premium of $42.28 over the second month, the highest level since October. WTI futures saw the front month trade at a $2.43 premium to the second month, marking the highest level since July 2022. WTI’s discount to Brent also reached its narrowest point since late April.
The surge in oil prices was further supported by Russian President Vladimir Putin’s directive to stabilize retail fuel prices in response to a jump caused by increased exports. This led to proposals to restrict exports of oil products purchased for domestic use.
The Federal Reserve Bank of Dallas also released a survey indicating that oil and gas activity in key energy-producing U.S. states has been on the rise, driven by the recent increase in energy prices.
