(Bloomberg) -- Oil rose for a third day as a bigger-than-expected drop in U.S. crude stockpiles and Saudi Arabia’s pledge to cut output overshadowed a rampant virus and violent protests in Washington.
Futures in New York traded near $51 a barrel after surging 6% over the previous two sessions. American crude inventories fell by three times as much as analysts had forecast, although gasoline and distillates stockpiles swelled, Energy Information Administration data show. The kingdom raised pricing for Asian and U.S. customers after saying it would unilaterally lower production.
Crude pared gains Wednesday -- along with broader financial markets -- amid scenes of chaos in Washington as protesters stormed the U.S. Capitol. Covid-19 also continues to surge, with the U.K. recording more than 1,000 daily deaths for the first time since April, Japan set to declare a state of emergency in Tokyo and surrounding areas and China reporting more infections near Beijing.
The Saudi move to cut production by 1 million barrels a day in February and March has enabled the American crude benchmark to break decisively above $50 a barrel for the first time since February. Goldman Sachs Group Inc (NYSE:GS)., however, cautioned against too much optimism, saying the decision probably reflected the kingdom’s expectations for demand to weaken further.
See also: Oil Refiners Reel From Saudi Output Cut Even as Demand Eases
“Although U.S. crude inventories fell by a whopping amount, the increases in gasoline and distillate stockpiles do show the current state of virus infection spread,” said Stephen Innes, chief market strategist at Axi. “But at the same time, confidence among investors is building that the Saudis-OPEC+ efforts and a new Biden administration may provide some relief.”
Democrat victories in Senate elections in Georgia, meanwhile, give the party control of the chamber. That may pave the way for more U.S. stimulus that would be supportive for energy demand in the world’s largest economy.
U.S. crude stockpiles fell by 8.1 million barrels last week, more than the median estimate in a Bloomberg survey for a drop of 2.7 million barrels, according to Energy Information Administration data. Gasoline and distillates inventories jumped by 4.5 million barrels and 6.4 million barrels, respectively, reflecting plummeting demand for fuels as the pandemic restricts movement.
The Saudi output cuts have reshaped the oil futures curve. Brent’s prompt timespread is 16 cents in backwardation, a bullish market structure where near-dated prices are more expensive than later-dated ones, compared with a contango of 7 cents on Monday.
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