Crude Oil Up after EIA Reports Larger-than-Expected Draw

Oil prices rebounded from earlier weakness after government data reported a larger-than-expected draw in U.S. crude oil inventories. The news helped trigger a strong short-covering rally since it caught most traders by surprise.

According to the U.S. Energy Information Administration, U.S. commercial crude inventories fell by 3.6 million barrels to a total of 528.7 million barrels in the week-ending April 21. Traders said the cause of the draw was a hike in refinery output.

The report from the EIA also caught investors leaning the wrong way, helping to contribute to the surge in prices, after the American Petroleum Institute reported an unexpected build in inventories.

Helping to put a lid on a huge rally in crude was the news of another build in gasoline and distillate stockpiles. U.S. production and imports also rose so any crude oil rally is likely to be short-lived.

Additionally, refining capacity utilization rose to 94.1 percent, its highest level since November 2015. That helped boost gasoline inventories to 241 million barrels, or where they were a year ago. This news puts pressure on refining margins.

Given the size of the current gasoline inventory and low demand, some are saying that stockpiles could remain at elevated levels even throughout the summer driving season. This would lead to less refining, and likely push crude inventories even higher.

There was hardly any response by traders to comments from Saudi Energy Minister Khalid al-Falih, who said he was interested in talks between OPEC and non-OPEC producers about extending the production cuts. This is because investors are starting to realize that the program will not be enough to trim the global supply glut and stabilize prices.

Finally, Thomson Reuters Eikon is saying that about 50 million barrels per day is being booked for shipment on tankers this month, up 10 percent since December.

U.S. Equity Markets

The major U.S. stock indexes rose on Wednesday in anticipation of the release of President Trump’s tax reform plan. Additionally, investors continued to react to solid earnings data.

Earlier in the session, Treasury Secretary Steven Mnuchin confirmed the administration’s outline will call for a 15 percent corporate tax rate.

Shortly before the opening, PepsiCo, United Technologies, Procter & Gamble and Twitter all posted a better-than-expected profit.

According to The Earnings Scout, of the 181 S&P 500 components that had reported as of Wednesday, 77 percent had topped earnings expectations while 67 percent beat on the top line.