BP BP Plc

By Nicole Friedman 

NEW YORK--Oil prices soared on Wednesday, as traders looked past record-high U.S. crude inventories and focused on the sliding dollar.

Light, sweet crude for March delivery settled up $2.40, or 8%, at $32.28 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, rose $2.32, or 7.1%, to $35.04 a barrel on ICE Futures Europe.

The price gains came despite what otherwise could be bearish inventory news. The Energy Information Administration reported on Wednesday that U.S. crude-oil inventories rose 7.8 million barrels in the week ended Jan. 29 to 502.7 million barrels, the highest level on record for weekly data going back to 1982. In monthly data, which don't line up exactly with weekly data, stockpiles last exceeded 500 million barrels in 1930.

Ample supplies of crude oil and petroleum products around the world have weighed on oil prices in recent months and sparked concern among traders that some regions could run out of storage space.

However, a weaker dollar supported prices. The WSJ Dollar Index, which tracks the U.S. currency against a basket of other currencies, recently was down 1.6%. A weaker dollar makes oil, which is traded in dollars, cheaper for foreign buyers.

"The dollar is sliding rather strongly," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. "The psychological blow that you take from 500 million [barrels] is significant, [but] it didn't crush the market."

An improvement in Chinese services activity also lent support to prices. The Caixin China services purchasing managers index rose to 52.4 in January, from 50.2 in December, Caixin Media Co. and research firm Markit said on Wednesday, pointing to a recovery outside the factory sector.

China consumes around 12% of the world's crude, second only to the U.S., and market participants have closely watched the country's economy to gauge the pace of future demand growth.

Current U.S. domestic commercial crude inventories represent 31.5 days of supply, the highest level since 1984, according to the EIA. Since mid-1982, the U.S. has held an average of 23.8 days of supply in storage, not including strategic reserves.

Crude inventories typically rise at this time of year as refineries buy less crude while performing seasonal maintenance. "Even though [the crude inventory build] was a shocking number, I think a lot of people...knew a big build was coming," said Phil Flynn, analyst at Price Futures Group.

Some traders are looking past ample supplies in the near-term because they expect low oil prices to lead to less production later this year, he said. Companies have announced substantial budget cuts in the past two weeks.

"We're at the price level where the damage has been done to the production side so dramatically," Mr. Flynn said. "People are starting to look ahead to the possibility that the market's going to get more in balance going forward."

The EIA also reported that gasoline supplies rose more than expected, and distillates, including heating oil and diesel fuel, fell less than expected. Refinery utilization unexpectedly declined.

Gasoline futures settled up 1.29 cents, or 1.3%, at $1.0137 a gallon. Diesel futures rose 6.77 cents, or 6.7%, to $1.0786 a gallon.

Crude stockpiles in Cushing, Okla., an important storage hub and the delivery point for Nymex futures, rose by 800,000 barrels to 64.2 million barrels.

U.S. crude-oil production in the lower 48 states was unchanged from the previous week.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

February 03, 2016 15:42 ET (20:42 GMT)

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