Oil charged towards $50 a barrel on Wednesday, making it the first time in seven months.
The rise was driven by expectations that shrinking supply will help take over any oversupply of crude, especially after data showed a major fall in the U.S inventories.
Outages as a result of violence in Nigeria, wildfires in Canada, have helped cut global oil supply by nearly 4 million barrels per day this month.
Although outages in Nigeria and Canada are temporary, however, they have cut down oversupply which has haunted the market for nearly two years.
Brent crude futures were up 65 cents at $49.26 a barrel by 7:13a.m. ET (1113 GMT), while OPEC’s daily basket price stood at $44.02 a barrel as at Tuesday.
“We are definitely moving out of this surplus situation that we’ve been living in since mid-2014. There will still be some time, maybe six months of surplus, but then we’re basically into rebalancing,” SEB head commodities strategist BjarneSchieldrop said.
“There have been losses in equities and especially emerging markets (this month) and still oil is up, so it’s definitely about oil fundamentals, rather than tailwinds from equities and currencies,” he said.
Strikes across France that crippled output from most of the country’s eight refineries have had little impact so far on crude oil prices, but rather helped lift refining margins for diesel and gasoline.
Data on Tuesday showed U.S. crude inventories fell by 5.1 million barrels to 536.8 million last week, double the expectations of analysts polled by Reuters.
Some of the drop was caused by falling imports due to the fires in Canada, which cut production by about 1.5 million barrels per day, said Ben Le Brun, market analyst at Sydney online brokerage OptionsXpress. Some crude producers restarted operations on Tuesday in Canada’s energy heartland.
“A strong U.S. economy is (also) good for oil consumption and demand,” Le Brun said.
Investors are awaiting confirmation of the big draw when the U.S. Energy Information Administration (EIA) issues official inventory figures on Wednesday.
Masanobu Hamada, general manager of the crude oil trading department at JX Nippon Oil & Energy Corp, said the current price rise was due to supply disruptions.
“Unless there is a halt in supply, the market lacks material (strength) to go higher because the inventory levels are high,” Hamada said.
However, analysts fear the rise may drop again, especially with Saudi Arabia recently boosting output to snatch market share from higher-, particularly U.S. shale drillers.
Saudi’s boost came on the heels of OPEC’s next general meeting in June where analysts are already in doubt of any need to look up to the cartel to cut output in order to boost price.