Oil jumped after a U.S. government report showed a record drop in domestic fuel inventories in the aftermath of a deep freeze that shuttered refineries in the U.S. South.

Crude futures in New York surged as much as 3.3 per cent on Wednesday, the biggest intraday gain in a week. U.S. gasoline inventories tumbled last week by the most since 1990 after a polar blast wiped out more than 5 million barrels a day of refining capacity in late February along the U.S. Gulf Coast, according to Energy Information Administration data. Crude stockpiles swelled with refineries still shut.

“The market expected some noise from the storm’s lingering effects,” said Matt Sallee, portfolio manager at Tortoise, a firm that manages roughly US$8 billion in energy-related assets. “Absent the magnitude of the changes, things came in pretty much as expected with the enormous product draw more than offsetting the record crude build.”

The U.S. data also showed gasoline supplied, a gauge for demand, surged the most since May, supporting those who say the oil market needs more barrels from producers as OPEC+ heads into a meeting on Thursday. The group is poised to agree on a coordinated production hike to cool the rapid surge in crude prices.

Oil has jumped more than 25 per cent so far this year, shepherded by the OPEC+ alliance’s continued production curbs and expectations for demand to meaningfully rebound as COVID-19 vaccines are rolled out worldwide. That strength though has paved the way for the alliance to unleash more barrels, with OPEC Secretary-General Mohammad Barkindo saying Tuesday that both the wider economic outlook and oil-market fundamentals continue to improve. The group could return the bulk of the 1.5 million-barrel-a-day hike that’s up for debate.

“The question is not ‘if’ but rather ‘by how much’ the petro-nations will ease supply curbs,” said Norbert Ruecker, an analyst at Julius Baer Group Ltd. “The economic recovery and the likely leisure and travel activity bounce will fuel oil demand and extra supplies will be needed to avoid an over-tightening.”

Prices

  • West Texas Intermediate for April delivery rose US$1.90 to US$61.65 a barrel at 12:07 p.m. in New York
  • Brent for May settlement climbed US$1.64 to US$64.34 a barrel

There are two parts to the potential production ramp-up that OPEC+ will discuss. The first is whether the cartel will proceed with a 500,000-barrel-a-day collective increase in April. The second is the question of how Saudi Arabia could phase out its extra reduction of 1 million barrels a day.

The gathering pace of recovery presents “the perfect opportunity for OPEC+ to raise production,” Australia & New Zealand Banking Group Ltd. said in a note, predicting that the group will agree to add 750,000 barrels a day.

In the U.S., the decline in both gasoline and distillate inventories coincides with a spate of refinery outages left in the wake of the cold snap: Plants processed crude at the lowest level on record last week. While some refineries, like Motiva Enterprises LLC’s Texas site, have been able to restart key processing units, many that shut due to the freeze are still in the process of making repairs or restarting operations.

Much of the crude production hit by the cold temperatures has been restored. At the same time, crude supplies grew by a record 21.56 million barrels, signaling weak demand from refiners at the time.

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