Crude prices had their worst day in over a month after the U.S. Energy Information Administration reported an unexpected increase in gasoline supplies.
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The 1.5-million-barrel increase in gasoline stockpiles raised fears that a glut in the fuel would cause refiners to go on a diet, cutting their purchases of crude and sending oil prices lower.
U.S. crude futures fell $1.97, or 3.8%, to $50.44 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.96, or 3.6%, to $52.93 a barrel.
It was the steepest tumble for both benchmarks since March 8, when oil prices sold off sharply after weekly EIA data showed an unexpected increase in crude supplies.
This time the data showed that crude oil inventories fell last week, but the 1-million-barrel decline wasn't big enough to assuage concerns about rising gasoline supplies and a 17,000 barrel-a-day increase in U.S. oil production. Output from U.S. oil fields has been steadily rising -- something that could stand in the way of efforts by the Organization of the Petroleum Exporting Countries to bring supply and demand into balance.
"It's hard to find anything in the short term that stood out at said 'buy me,'" said Donald Morton, senior vice president at Herbert J. Sims & Co. who runs an energy trading desk.
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Hedge funds and other speculative investors that had been washed out of the market after the price drop in March had started to make their way back, growing their bullish position for two weeks in a row, according to data from the Commodity Futures Trading Commission.
"Today, they all got to take the Tylenol," Mr. Morton said.
Gasoline supplies had been on the decline for eight straight weeks prior to Wednesday's data. Analysts and traders surveyed by The Wall Street Journal had predicted that gasoline supplies dropped by 2 million barrels last week.
"As we approach the Memorial Day weekend, gasoline numbers are going to have more and more importance," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc.
And refiners are running plants hard -- their utilization rose to 92.9% of capacity last week, compared with 89.4% a year ago. That means they are soaking up more of the oil that has built up in storage tanks, but it could point to more and more gasoline that could overwhelm demand, Mr. Yawger said.
"There's a possibility this is not a one-off," he said.
The increase in gasoline stockpiles was largely driven by a jump in imports, said Sam Margolin, an analyst at Cowen & Co. While fuel demand has been relatively strong, consumers weren't able to absorb the additional 355,000 barrels a day of imported fuel that came ashore last week, he said.
"People dump gasoline in the U.S. because it's one of the few places in the world where demand has been consistently good," he said. "We just have to watch that. A similar thing happened last year and obviously was not good for oil prices in the second half of the year," he said.
Gasoline futures fell 5.2 cents, or 3.0%, to $1.6590. Diesel futures fell 4.06 cents, or 2.5%, to $1.5813 a gallon.
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(END) Dow Jones Newswires
April 19, 2017 16:32 ET (20:32 GMT)