Investing.com -- U.S. crude futures surged as much as 3% before paring the gains amid heavy profit taking, as investors reacted to first the supply draw in U.S. crude inventories in two and a half months.
On the New York Mercantile Exchange, WTI crude for January delivery traded between $36.87 and $38.98 a barrel, before settling at $37.22, down 0.29 or 0.77% on the session. It came one session after U.S. crude futures slipped below $37 a barrel for the first time since early-2009 during the height of the Financial Crisis. Over the last month of trading, the front month contract for WTI crude has slumped more than 16%.
On the Intercontinental Exchange (ICE), brent crude for January delivery wavered between $39.59 and $41.55 a barrel, before closing at $40.17, down 0.09 or 0.17% on the day. On Tuesday morning, North Sea brent futures hit a fresh seven-year low as the aftershocks from OPEC's semiannual meeting last week sent prices crashing below $40 a barrel. Both brent and WTI crude started a week on a note by falling more than 6% at one point in Monday's session.
Meanwhile, the spread between the international and U.S. domestic benchmarks of crude stood at $2.95, above Tuesday's level of $2.56 at the close of trading.
U.S. crude futures jumped by more than $1.25 a barrel on Wednesday morning after the Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that commercial crude inventories fell by 3.6 million barrels for the week ending on Dec. 4. At 485.9 million barrels, U.S. crude stockpiles still remain near the highest levels in at least 80 years. The draw halted a 10-week streak of supply increases, as crude inventories nationwide approached near capacity.
Analysts initially anticipated a modest build of 252,000 barrels, but shifted their expectations after the American Petroleum Institute reported a supply draw of 1.9 million barrels on Tuesday after the close of trading. Total motor gasoline inventories increased for the week by 0.8 million barrels, while distillate fuel inventories surged by 5.0 million barrels.
Production, meanwhile, fell by 38,000 from 9.202 million barrels per day to 9.164 million bpd, as shale producers were forced to cut output at lower prices. A week earlier, production surged above 9.2 million bpd for the first time in more than a month. Any major supply draws are viewed as bullish for crude prices, which have slumped more than 80% over the last 18 months amid a glut of oversupply on global energy markets.
Investors received little indication that prices will stabilize in the near future after OPEC opted to leave its production quota unchanged last week at 30 million barrels per day during a closely watched meeting in Vienna. In recent months, the world's largest oil cartel has exceeded the ceiling by as much as 2 million bpd in an apparent effort to squeeze out higher-priced shale producers from the U.S.
Elsewhere, reports surfaced on Wednesday that Russia president Vladimir Putin has contemplated using nuclear weapons as part of his nation's strategy to defeat fighters from the Islamic State. Though Putin reportedly broached the subject with aides from the Kremlin, he came far short of discussing a proposal for immediate deployment of the weapons.
“We must analyze everything happening on the battlefield, how the weapons operate," Putin told Defense Minister Sergei Shoigu, according to Russian-state operated network RT. "Naturally, this is not necessary when fighting terrorists and I hope will never be needed."
Energy prices are sensitive to any reports of increased geopolitical instability in the Middle East, where more than 30% of the world's total crude output is pumped each year.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by more than 0.8% on Wednesday to an intraday low of 97.58. Last week, the index eclipsed 100 to reach a 12-month high, before plunging more than 2% on Dec. 3 when the European Central Bank spooked markets by approving limited easing measures at a Governing Council meeting in Frankfurt.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.