Oil futures rose about 2 per cent overnight as a steady improvement in US refining activity offset a surprise build in crude and diesel inventories.
Brent for July rose 55 cents, or 1.6 per cent, to settle at $US35.29 a barrel on its second to last day as the front-month. US West Texas Intermediate (WTI) crude rose 90 US cents, or 2.7 per cent, to settle at $US33.71.
That move in US crude narrowed Brent’s premium over WTI to its lowest since mid-April.
US crude inventories rose 7.9 million barrels last week, exceeding expectations, due to a big increase in imports from Saudi Arabia, the Energy Information Administration (EIA) said.
The EIA’s report, however, also showed refiners boosted output and gasoline stockpiles fell unexpectedly, while crude inventories at the US Cushing storage hub in Oklahoma fell 3.4 million barrels.
The market initially fell due to the big increase in crude stocks, but switched into positive territory when it saw the drawdown at the Cushing delivery point for WTI, said Bob Yawger, director of energy futures at Mizuho in New York.
Oil prices have rebounded in recent weeks on anticipation of improved demand after the coronavirus pandemic sapped worldwide consumption by roughly 30 per cent. Overall investment is dropping and US production cuts are balancing out the supply glut, but demand still has not bounced back entirely.
Markets are also concerned Washington could slap trade sanctions on China due to Beijing’s move to impose a new security law on Hong Kong.
Uncertainty about Russia’s commitment to continuing deep output cuts kept the rally in check. Saudi Arabia and other OPEC producers are considering an extension of record output cuts until the end of 2020 but have yet to win support from Russia, according to OPEC+ and Russian industry sources.