Oil prices rose about 2% on Wednesday, after a large unexpected drawdown in U.S. crude inventories and a warning from the Saudi energy minister that raised the prospect of further OPEC+ production cuts.
Brent crude futures rose $1.40, or 1.8%, to $78.24 a barrel by 10:51 a.m. EDT (1451 GMT) while U.S. West Texas Intermediate crude (WTI) gained $1.48, or 2%, to $74.39.
U.S. crude inventories posted a massive surprise drawdown, falling by 12.5 million barrels last week to 455.2 million barrels, the Energy Information Administration said on Wednesday. Analysts had expected an 800,000-barrel rise.
Fuel stockpiles also fell. U.S. gasoline stocks dropped by 2.1 million barrels in the week to 216.3 million barrels, the EIA said, while distillate stockpiles fell by 600,000 barrels in the week to 105.7 million barrels.
The U.S. Memorial Day holiday, this year on May 29, traditionally marks the beginning of the peak summer travel season and higher fuel demand.
“Refiners are absolutely going max out with refinery runs right now, trying to keep up with demand,” said Phil Flynn, an analyst at Price Futures Group.
“Oil prices have been so focused on the debt ceiling and interest rates, but really they haven’t focused on the supply and demand side which has tightened in the last couple of weeks.”
Saudi Arabia’s energy minister said short-sellers – those betting that prices will fall – should “watch out” for pain.
Some investors took that as a signal that the Organization of Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, could consider further output cuts at a meeting on June 4.
“Oil prices are trading higher … buoyed by the latest short-seller warning from Saudi Arabia,” said OANDA senior market analyst Craig Erlam.
“(But) if past experience is anything to go by, traders may be tempted to call his bluff.”
Weighing on broader markets, another round of debt ceiling talks ended on Tuesday with no signs of progress as the deadline to raise the government’s borrowing limit or risk default ticked closer.
Negotiators for Democratic President Joe Biden and Republican Speaker Kevin McCarthy were expected to reconvene on Wednesday morning, a source familiar with the matter said.
Price rises were also capped by news that Britain’s stubbornly high inflation rate fell by less than expected last month, according to official data that raised the chances of more interest rate hikes.