Oil jumped to the highest level in more than a week after Saudi Arabia raised prices for crude shipments to Asia, as demand from refineries improved.

Futures surged as much as 6.3 per cent in New York and 6 per cent in London, where volumes were about 50 per cent below the 100-day average because of the Easter Monday holiday. Saudi Arabia narrowed the discount on its main Arab Light grade for next month’s sales to Asia.

US refineries are processing record amounts of crude for this time of year, while Saudi Arabian Oil Minister Ali al-Naimi said last month that global demand was picking up. Prices also rebounded from losses spurred by Iran’s nuclear accord with world powers last week, on speculation the OPEC member won’t add to a global glut anytime soon.

“The gap between supply and demand is not as wide as people thought it was,” said Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors. “In the second half of 2015, the trend is more up than down. You’ll start to see more of a demand response to lower oil prices.”

West Texas Intermediate for May delivery gained $US2.94, or 6 per cent, to $US52.08 a barrel at 1.47pm on the New York Mercantile Exchange. The contract earlier rose as far as $US52.22, the highest level since March 26. The exchange was closed April 3 for the Good Friday holiday.

Brent for May settlement climbed $US3.01 to $US57.96 on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $US5.90 to WTI.

Oil extended gains after Genscape was said to report a decline in Cushing, Oklahoma, inventories from March 31 to April 3, according to Phil Flynn, senior market analyst at the Price Futures Group in Chicago. Cushing is the delivery point for WTI futures.

Oil is still more than 50 per cent lower than last year’s peak as US inventories stayed at the highest level in at least three decades and the Organisation of Petroleum Exporting Countries refused to cut production.

State-owned Saudi Arabian Oil Co, known as Saudi Aramco, raised official selling prices for Asia for a second straight month as refiners that buy its crude earned more for turning oil into gasoline and diesel.

Saudi Aramco narrowed the discount for its Arab Light grade to Asia to the least since December, cutting it by 30 cents a barrel to 60 cents less than the regional benchmark, the company said in an emailed statement Sunday. Arab Medium will sell at a $US2 discount in May, an increase of 20 cents a barrel from April, according to the statement.

“The drive for Aramco to raise prices is the improvement in the refining margin for gasoline and diesel,” Essam al- Marzouk, a Kuwait-based analyst and former vice president for Europe at Kuwait Petroleum International, said by email Sunday.

US refineries used 15.9 million barrels a day of crude in the week ended March 27, the highest seasonal level in Energy Information Administration data going back to 1989.

Iran and world powers reached a preliminary accord April 2 over its nuclear program. The US and European Union would lift economic sanctions if the International Atomic Energy Agency verifies Iran’s compliance with curbs on its nuclear program.

“People realised that we aren’t going to see a big influx of Iranian oil in the market for at least the next three to six months. The risk reward is poised on the upside,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “The Saudis raised their prices to Asia and it’s kind of supportive.”

Iran won’t affect physical oil markets before 2016 because obstacles remain to the potential lifting of sanctions and a revival in the Persian Gulf nation’s output, according to Morgan Stanley.

Verification by the IAEA could take more than six months, analysts including Adam Longson said in a report on Sunday. If Iran expands output by 1 million barrels a day and clears supplies held in floating storage, any “cyclical recovery” in global oil prices could be delayed by as long as one year, according to Morgan Stanley.

Iran’s oil exports have fallen by half to about 1 million barrels a day since sanctions intensified in mid-2012. It tied Kuwait last month as the third-largest producer in OPEC, a Bloomberg survey showed.

Extracted in full from the Australian Financial Review.