Oil Holds Above $65 as Industry Tally Said to Find Surprise Jump

(Bloomberg) -- Crude's biggest daily advance in eight months was crimped after an oil-industry report was said to show a surprise addition in surplus U.S supplies.

Futures in New York ticked lower from the settlement Tuesday after the American Petroleum Institute was said to report crude inventories unexpectedly increased by 1.76 million barrels last week. That contrasted with a Bloomberg survey forecasting a 1.25 million-barrel decrease. The federal government is scheduled to release its tally on Wednesday.

Earlier, crude jumped to the highest since 2014 in London trading as stock markets rallied, China struck a conciliatory tone on trade and Saudi Arabia was said to seek higher prices.

“Every once in a while, we go through periods when there is a pretty high correlation between crude prices and the S&P 500 and we seem to be in one of those now,” said James Williams, president of London, Arkansas-based energy researcher WTRG Economics. On Wednesday, “we'll be in for a correction, particularly if we get confirmation on a build by the Energy Information Administration.”

Chinese President Xi Jinping said zero-sum mentalities were “out of place” and backed dialogue to resolve disputes, dissipating fears of a trade spat with the U.S. Meanwhile, Saudi Arabia was said to want to get oil near $80-a-barrel to fund spending and support the valuation of state oil giant Aramco's initial public offering.

“It's a risk-on type day,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “The biggest correlation is to the equity markets.”

Brent for June settlement climbed as much $2.69 to $71.34 a barrel on the London-based ICE Futures Europe exchange, the highest since December 2014, after settling at $71.04.

West Texas Intermediate for May delivery traded at $65.49 a barrel at 4:30 p.m. after settling at $65.51 a barrel on the New York Mercantile Exchange.

‘Opening Up'

The Chinese leader pledged a “new phase of opening up” in a long-planned speech that was closely watched by traders for any response to U.S. President Donald Trump's plan to hit hundreds of Chinese products with duties.

Meanwhile, in conversations with OPEC delegates and oil market participants, Saudi officials had been careful to avoid pinpointing an exact price target. Yet people who have spoken to them said the inescapable conclusion from the conversations was that Riyadh is aiming for $80.

“The day-to-day price action that we've seen is really about risk appetite and not so much fundamentals,” said Michael Wittner, the head of commodities research at Societe Generale SA in New York.

The S&P 500 Energy Index climbed as much as 4.1 percent, the biggest intraday advance since November 2016. The best performers included TechnipFMC Plc and Devon Enegry Corp.

The API was also said to report crude supplies at the biggest U.S. storage hub in Oklahoma rose by 1.45 million barrels last week. That would be the fifth straight week of builds if EIA data confirms it.

Other oil-market news:

Gasoline futures rose 2.9 percent to settle at $2.0409 a gallon, the highest level since August.
U.S. crude production is set for a swing higher next year, according to the Energy Information Administration, which raised its average output forecast for 2019, yet lowered it for this year, reiterating that crude production would still top 11 million barrels a day in October.

--With assistance from Tsuyoshi Inajima Sharon Cho Heesu Lee and Grant Smith

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Joe Carroll, Carlos Caminada