Oil Surges on Signs of Growing Demand

Oil Surges on Signs of Growing Demand

By

TIMOTHY PUKO

Updated April 6, 2015 3:51 p.m. ET

Oil prices surged to their biggest gain in nearly two months, buoyed by signs of rising demand in the U.S. and Asia.

Data provider Genscape Inc. reported that supplies in Cushing, Okla.—a key storage hub and the delivery point for the benchmark U.S. futures contract—fell by nearly 300,000 barrels between March 31 and April 3, according to a broker. Cushing supplies are at a record, and this is first time those stocks have seen a drawdown in Genscape data since early December, the broker said.

The data added to momentum for bulls who have been betting rising demand and other factors would reverse a monthslong decline in oil prices. Markets had already been primed for a rally from news over the long weekend that saw Saudi Arabia raise its official crude oil selling price for Asian buyers and the dollar edging lower in value, both boosting hopes of increasing international demand for oil.

Light, sweet crude for May delivery settled up $3.00, or 6.1%, to $52.14 a barrel on the New York Mercantile Exchange. It was the U.S. benchmark’s biggest day of gains since Feb. 3 and its highest settlement since Feb. 17.

Brent, the global benchmark, settled up $3.17, or 5.8%, to $58.12 a barrel on ICE Futures Europe. It was Brent’s biggest one-day percentage gain since Feb. 3 and its highest settlement since March 26.

Many have been betting that oil storage at Cushing could near capacity in part because it hasn’t had a week of falling levels in official government data since late November. The U.S. Energy Information Administration will release its official storage data on Wednesday.

Demand has been strong enough to buoy prices for gasoline and other oil-based fuels. The drawdown from storage in Cushing is probably a sign that more refiners are taking advantage of a buildup in oil stockpiles, buying at low prices and producing those fuels, said Tariq Zahir, managing member of Tyche Capital Advisors.

“The refineries have such great margins right now they have to do whatever they can to make unleaded gasoline,” he said. “I see (oil prices) going lower. But for today, you can’t fight this rally.”

Markets had been closed for the Good Friday holiday, and opened higher on reaction to news from the weekend.

Saudi Arabia raised its Asian prices for May on the back of strong refining margins in the region and a strong Dubai crude price benchmark, Singapore-based traders said. While state-run Saudi Aramco Oil Co. raised price differentials for all its crude grades sold to Asia, it lowered most prices for the U.S., reflecting weaker Nymex crude prices and an oversupply in the U.S. market.

The dollar also influenced commodity markets, inching lower after Friday’s weaker-than-expected U.S. jobs data as investors bet the Federal Reserve is likely to delay raising interest rates until later in the year. The retreat is undoing a dollar rally that has weighed on commodities prices in recent weeks. Oil is one of many commodities traded in dollars, making it cheaper for holders of other currencies when the dollar depreciates.

The dollar’s turn, combined with a decreased number of drilling rigs, has many speculative traders targeting a comeback for oil, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates. The U.S. oil-rig count fell for the 17th consecutive week, declining by 11 rigs to 802, according to Baker Hughes data.

Bulls are thinking that the dollar’s depreciation could boost international oil demand and falling production could erase today’s oversupply, Mr. Ritterbusch said. That makes oil an enticing way for some investors to diversify their investments for a shifting economy, he added.

“Oil is still going to be valued as an asset class,” Mr. Ritterbusch said.

Finally, gains are coming as a rebuke against the snap judgments of last week’s progress toward an Iranian nuclear deal, analysts said. Several of them have said that any deal isn’t likely to send Iranian oil flooding into markets for months at best, allaying fears that a deal could quickly send more oil into an oversupplied market.

Morgan Stanley,Barclays, and Tudor, Pickering, Holt & Co. have joined Credit Suisse and FBR Capital Markets in saying that late 2015 or 2016 are more likely target dates for Iranian oil exports. About 200,000-300,000 barrels a day could slip into the markets in the near term, but a one-million-barrel increase is at least a year away, Barclays analystMichael Cohen said.

Nymex reformulated gasoline blendstock for May, the benchmark gasoline contract, gained 4.6% to $1.8425 a gallon. Diesel futures rose 4.9% to $1.7643 a gallon.

—Eric Yep contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com

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