Crude Breaks $65 as Record Drawdown Whittles U.S. Oil Stockpiles

Crude popped above $65 a barrel for the first time in more than three years after U.S. crude stockpiles fell for a 10th week in the longest stretch of declines on record.

Futures advanced 1.8 percent in New York. Crude in American tanks and terminals slipped last week to the lowest since February 2015 while inventories at the nation’s biggest storage hub also swung lower, according to government data. Demand for stored supplies in the world’s biggest economy has been robust at a time of year when it’s usually weak because of refinery repairs, all against the backdrop of OPEC production curbs.

“Demand is outpacing supply,” Brian Kessens, who helps manage $16 billion in energy assets at Tortoise Capital Advisors LLC, said by telephone. “The OPEC curtailments are helping and their compliance has been relatively strong.”

Oil hit the highest levels since 2014 in New York amid shrinking supplies in the U.S. and a united front by major oil producers including the Organization of Petroleum Exporting Countries and Russia. Meanwhile, Russia’s second-biggest crude producer expects worldwide supply and demand to balance out by April, Lukoil PJSC billionaire CEO Vagit Alekperov said at the World Economic Forum in Davos, Switzerland.

West Texas Intermediate for March delivery jumped $1.14 to settle at $65.61 a barrel on the New York Mercantile Exchange, the highest level since December 2014. Total volume traded was about 52 percent above the 100-day average.

Brent for March settlement rose 57 cents to end the session at $70.53 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.92 to WTI.

Relief Rally

Some traders had been bracing for inventories to move in the opposite direction and show an increase after the industry-funded American Petroleum Institute was said to have suggested such an outcome in its Tuesday evening report. The API typically discloses its weekly estimates a day before the U.S. Energy Information Administration releases its tally.

This is “somewhat of a relief rally in a way because it was another draw, as opposed to a big build,” said Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston.

The Energy Information Administration on Wednesday said U.S. crude production rose for a second consecutive week to 9.88 million barrels a day. Oil inventories at the key Cushing, Oklahoma, pipeline hub fell to the lowest level since January 2015, while gasoline stockpiles climbed for an 11th week and distillate stockpiles also increased, according to the government.

“What the U.S refinery complex is seeing is really high demand for gasoline and diesel worldwide,” Kessens, said. The arbitrage “gives the U.S. an incentive to export refined products.”

Oil-market news:

The oil surplus is still being reduced on a weekly basis and demand exceeds supply even with shale growth, Russia’s Energy Minister Alexander Novak said at the World Economic Forum in Davos. Saudi Arabia plans to link the most important tax paid by state-owned energy giant Aramco to the price of oil, a significant move ahead of the company’s initial public offering this year. Saudi Aramco’s trading unit started swapping the kingdom’s crude oil for products refined in other countries, allowing the company to tap new markets, according to its chief executive officer.