U.S. West Texas Intermediate and internationally-favored Brent crude oil futures posted solid gains last week with both contracts closing at three-week highs.
May WTI crude oil finished the week at $50.60, up $2.63 or +5.48%. June Brent crude oil closed the week at $53.53, up $2.61 or +5.13%.
The week began with the market being underpinned by reports that OPEC and non-OPEC members had gathered in Kuwait last weekend to discuss the possibility of extending the program to reduce output.
Later in the week, the rally began to pick up more support after Libya reported supply disruptions. The short-covering rally continued on Wednesday after the U.S. Energy Information Administration (EIA) reported an inventory build that was smaller than expected.
Oil prices surged for a third day on Thursday after reports surfaced that Kuwait gave its backing for an extension of OPEC production cuts. Speculators are also betting that Saudi Arabia will roll over its production cuts for another six months starting in July.
Later in the week, there were also reports that Russia may be gradually reducing production, bringing it closer to the 300,000 barrel per day output cuts that it had promised.
Weekly Inventory Data
The weekly U.S. Energy Information Administration (EIA) showed crude oil inventories rose 867,000 barrels in the week-ending March 24. This figure was nearly half of the 1.2 million barrel build that was expected.
The EIA report also helped U.S. gasoline futures surge more than 2 percent to their highest in three weeks. It was helped by the inventories report that showed a 3.7 million-barrel drop in gasoline stocks last week, nearly 2 million barrels more than forecast.
Fears of oversupply will continue to hang over the market but this news may continue to be offset by talk of an extension of the supply cuts by OPEC and non-OPEC members. This information will be especially bullish if Russia continues to cut production and if it says it supports an extension of the program.
The short-covering is also likely to continue if the supply disruptions in Libya continue. Additionally, the steep drop in gasoline inventories, coming at the end of the refinery maintenance season, likely means crude oil inventories are on the cusp of declining. If this proves to be true then investors are going to shift their focus on OPEC and its ability to persuade its members and non-members to extend the output production program.