Oil prices rose on Wednesday after US crude oil inventories dropped over the past week, but gains are limited by concerns about economic decline due to coronavirus pandemic and weak refinery margins.
Oil futures improve as the production drop happened faster than expected and supply shortage causing storage areas to fill has decreased.
Brent crude LCoc1 settled up $1.10, or 3.2%, at $35.75 per barrel while July U.S. crude futures CLc1 ended up $1.53, or 4.8%, at $33.49.
US Crude oil inventories dropped 5 million barrels last week. Inventory in the delivery center in Cushing, Oklahoma decreased by 5.6 million barrels. According to the data, the nightmare that storage areas will be exhausted will probably not happen.
However, despite all good signs it is necessary to see more signs that rebalancing has occurred with the increasing demand.
On Wednesday, North Dakota energy regulators were called on by the country’s largest shale producers to intervene in the oil market, including limiting production. Production in North Dakota has already dropped more than half a million barrels per day (bpd), supporting prices with cuts in Texas and elsewhere.
With the worldwide mitigation of measures taken to combat pandemic, fuel demand has increased. Transport data shows that the Organization of the Petroleum Exporting Countries and its allies comply with the commitment to cut 9.7 million barrels a day.
US gasoline and refined inventory rose last week. Weak crude oil refining margins may delay demand recovery.
Despite limited gains recorded in the US, the world’s largest oil consumer, concerns remain about the economic fallout of the coronavirus pandemic.
On Wednesday, the US Central Bank promised policy makers to do whatever is necessary to support the US economy.
There is a limited recovery in oil prices for sure, however, prices are likely to remain at current levels unless major decisions such as a new OPEC decision, new limitations, and longer production and supply cuts are taking place.