By Barani Krishnan

Investing.com – It was just the tonic the doctor ordered for the ailing commodity bull.

Oil prices jumped as much as 3% on Wednesday after the U.S. government reported a crude stockpile draw four times above expectations. The biggest weekly inventory drop since September 2016 could dramatically change the narrative of a market that was in bear territory just weeks ago, until the escalation of U.S.-Iran tensions and hopes of a resolution to the U.S.-China trade war began lifting prices.

New York-traded West Texas Intermediate crude was up $1.55, or 2.7%, at $59.38 a barrel by 12:45 PM ET (16:45 GMT). Week-to-date, WTI was up about 3.4% after last week’s 9.4% gain, which was already its best since November 2016.

London-traded Brent crude, the benchmark for oil outside of the U.S., was up $1.36, or 2.1%, at $65.64. Brent was up 0.8% on the week after last week’s advance of 5%, which was its most for a week since February.

Year-to-date, the U.S. crude benchmark is showing a 31% rise while its U.K. peer 22%.

Just in May, both WTI and Brent languished in bear market territory after losing as much 20% from 2019 highs hit in April as the EIA reported unseasonable builds in crude stockpile and other oil products in the run-up to the summer – the strongest period for fuel demand in the United States.

But in its latest report, the EIA said crude oil inventories plummeted by 12.79 million barrels in the week to June 21, against forecasts for a stockpile draw of 2.54 million barrels. In the previous week to June 14, crude inventories declined by 3.11 million barrels, after a net build of nearly 20 million barrels over five weeks.

The EIA report also showed that gasoline inventories unexpectedly fell by 1.0 million barrels last weel, compared to expectations for a gain of 0.29 million barrels in the previous week. Distillate stockpiles slumped by 2.4 million barrels, compared to forecasts for a build of 0.52 million.

“The data was definitely a bullish surprise on all fronts,” said Tariq Zahir, founder of the New York-based oil-focused hedge Tyche Capital Advisor.

“We wouldn’t be surprised to see the $60 level get breached in WTI,” he said. An additional factor affecting energy prices is Philadelphia Energy Solutions’ decision to permanently shut its oil refinery in Philadelphia after a massive fire last weekend. That has helped push gasoline prices up and could feed back into crude pricing, too.

Gasoline in New York was up 4.4% at $1.925 per gallon. It's up 6% on the week and more than 45% on the year.

But Zahir, typically an oil bear, also warned that traders would now be scrutinizing the G20 meeting later this week and the July 1-2 OPEC meetings to see how the remaining elements for crude demand fare. “We will see the next directional move on based on the results of these two events.”

The G20 gathering will be in the spotlight for oil markets as Russian President Vladimir Putin meets Saudi Crown Prince Mohammed Bin Salman. They will likely discuss whether and how to extend the current production cut agreement between OPEC and other producers, of which Russia is by far the largest.

Moscow had convinced OPEC to delay the meetings initially scheduled for June 25-26 to July 1-2 in order to have time for discussion at the G20.

While waiting for a confirmation of an extension of output cuts, U.S. crude has gained more than 10% since mid-June as escalating tensions between the U.S. and Iran countered the ongoing Sino-U.S. trade conflict as the principal short-term price driver.

U.S. President Donald Trump provided further support on that front Wednesday, saying it was "absolutely possible" he would emerge from a meeting with Chinese leader Xi Jinping with a deal that would keep him from imposing tariffs he had threatened to put on China.

Although expectations for a definitive deal are low, any signs of progress would ease concerns over a potential hit to demand for oil.

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