NEW YORK Oil prices surged as much as 4 percent on Wednesday, with Brent back above $40 a barrel, after a big draw in U.S. gasoline convinced the market that energy demand was improving despite U.S. crude stockpiles at record highs.
Crude oil prices also rose on speculation that top producers might agree soon to an output freeze.
Brent futures were up $1.30, or 3.2 percent, at $40.95 a barrel by 12:03 p.m. EST (1703 GMT). U.S. crude futures rose $1.50, or 4 percent, to $38.
The U.S. Energy Information Administration said crude stockpiles rose 3.9 million barrels to nearly 522 million barrels, as predicted by analysts in a Reuters poll.
But gasoline inventories fell 4.5 million barrels, much more than the polled number of 1.4 million barrels. That was also the largest weekly draw in almost two years for gasoline.[EIA/S]
U.S. gasoline demand over past four weeks was also 7 percent higher than a year ago, the EIA said.
"Gasoline is the star of the show today," said Matt Smith, director of commodity research at New York-headquartered energy data provider ClipperData. "Ongoing strength in demand has yielded a large draw to gasoline inventories despite a rebound in refinery runs."
U.S. gasoline futures hit 4-month highs, rallying 4 percent. The crack spread for gasoline, a measure of profit margin refiners get for turning a barrel of crude into the motor fuel, scaled seven-month highs.
Earlier in the session, oil rallied after an Iraqi oil official told a state newspaper that producers in and outside the Organization of the Petroleum Exporting Countries plan to meet in Moscow on March 20 to discuss an output freeze. Russia's energy ministry, however, said no date or place had been set for the meeting.
Oil prices have gained almost 50 percent from 12-year lows hit less than two months ago, since OPEC members Saudi Arabia, Qatar and Venezuela, along with non-OPEC exporter Russia, pledged to leave supply at January's levels if others cooperated.
On Tuesday, Brent hit a post-settlement 2016 high of $41.48, versus a 2003 low of $27.10 on Jan. 20. U.S. crude rose to a two-month peak of $38.39 after the previous session's close, up from a 12-year low of $26.05 low set on Feb. 11.
Energy consultancy Wood Mackenzie said it expected this year's average price of crude to be lower than last year's, "reflecting large oversupply and high stock levels during the first half of 2016."
Credit ratings agency Moody's, meanwhile, warned of the potential for output declines and defaults in debt servicing by oil producing countries due to low prices.
(Additional eporting by Amanda Cooper in LONDON and Henning Gloystein in SINAGPORE; Editing by Alden Bentley and Marguerita Choy)
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Updated Date: Mar 10, 2016 00:15 AM