US crude futures surged on Wednesday, reaching their highest level since July 2015 after government data showed a surprisingly large drop in weekly crude inventories.
The West Texas Intermediate (WTI) benchmark for US crude futures rose $1.14, or 2.3%, to $51.43 a barrel at 4:42 pm ET. The contract touched an intraday high of $51.93, the highest since July 15.
Benchmark Brent crude futures added 88 cents, or 1.7%, to $52.56 a barrel after briefly trading above $53 earlier in the day. Brent is trading just below the October 10 high of $53.14.
The US Energy Information Administration (EIA) reported Wednesday that crude stockpiles fell 5.2 million barrels in the week ended October 14, confounding expectations for a 2.7 million-barrel build. The total inventory count currently stands at 468.7 million barrels.
On Tuesday, the American Petroleum Institute (API) said crude inventories fell 3.8 million barrels in the latest week.
Also supporting crude prices Wednesday was evidence of declining production in China. Crude output from the world’s second-largest economy fell nearly 10% to 3.89 million barrels per day, its lowest in almost six years.
Beijing also reported on Wednesday that gross domestic product (GDP) expanded at an annualized 6.7% in the third quarter, following a similar rise in the previous two quarters.
Surging oil prices supported a large rally in US energy stocks. The S&P 500’s energy index was by far the most positive contributor Wednesday, rising 1.4%. Energy, equipment and service providers rose 3.5%, while oil, gas and consumable fuels companies added 1.7%. The large-cap S&P 500 Index closed up 0.4%.
Oil markets have been supported all month long by OPEC’s plan to cut production to between 32.5 million and 33 million barrels per day. However, many analysts and banks have described the initiative as “self-defeating,” as higher prices may encourage US shale producers to continue drilling. Active US oil rigs have increased in 15 of the past 16 weeks, data from energy services provider Baker Hughes showed on Friday.
OPEC anticipates that it will conclude the deal to freeze output at its next meeting in Vienna on November 30. Although Russia has also agreed to participate, it has not yet agreed to a production limit. OPEC secretary general Mohammad Barkindo said earlier this week he was confident that Russia would join in on the producer group’s freeze efforts.