Oil prices edged higher on Wednesday as Saudi Arabia’s surprise weekend pledge to deepen output cuts outweighed weak Chinese export data and rising U.S. fuel stocks.
Brent crude futures were up 75 cents, or 0.98%, at $77.04 a barrel while U.S. West Texas Intermediate crude futures gained 77 cents, or 1.07%, to $72.51.
Both benchmarks jumped more than $1 on Monday after Saudi Arabia’s decision over the weekend to reduce output by 1 million barrels per day (bpd) to 9 million bpd in July.
“As things stand, the oil market is on the cusp of a massive shortfall,” said PVM Oil’s Stephen Brennock.
“Additional Saudi cuts are expected to deepen the market deficit to more than 3 million bpd in July by some estimates”.
Prices fell earlier in the session on weak Chinese economic data and rising U.S. fuel inventories.
China’s exports shrank much faster than expected in May and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.
Wednesday’s data also showed that crude oil imports into China, the world’s largest oil importer, rose to their third-highest monthly level in May as refiners built up inventories.
A JP Morgan note showed forward crude cover in the country has climbed, indicating refiners have not increased processing rates but are instead storing oil.
U.S. gasoline inventories, meanwhile, rose by about 2.4 million barrels and distillates inventories were up by about 4.5 million barrels in the week ended June 2, market sources said on Tuesday, citing American Petroleum Institute figures.
The unexpected build in fuel inventories raised concerns over consumption by the world’s top oil user, especially as travel demand grew during the Memorial Day weekend.
The U.S. Energy Information Administration (EIA) on Tuesday said that U.S crude oil production this year would rise faster and demand increases would be slower than previously expected.