Oil Drops on Disappointing Inventory Data

By Timothy Puko Features Dow Jones Newswires

Oil prices flipped to losses Wednesday after changes in U.S. stockpiles failed to show the major changes and easing oversupply some had expected.

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Crude levels in U.S. storage fell by 930,000 barrels in the week ended Friday, the U.S. Energy Information Administration said Wednesday morning. That was less than a fourth of the draw estimated by the American Petroleum Institute, which had helped the market on a slight rebound that started late Tuesday. Gasoline stockpiles also grew by 191,000 barrels, compared with API's estimate of a 1.9-million-barrel fall.

Light, sweet crude for June delivery recently fell 15 cents, or 0.3%, to $47.51 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, lost 11 cents, or 0.2%, to $50.36 a barrel on ICE Futures Europe. They had both traded at small gains before the EIA's data release at 10:30 a.m. EDT.

The turnaround from small gains is the latest setback for oil markets that have foundered at a time when many had expected them to rally. Output cuts from the Organization of the Petroleum Exporting Countries and other major exporters were supposed to ease oversupply and send prices well beyond $50 a barrel, many traders and analysts had said. Instead, Wednesday's data is the latest to throw into question whether the cuts will have their intended effect of lowering high inventories, said Chris Kettenmann, chief energy strategist at Macro Risk Advisors.

Gasoline stockpiles are central to oil markets right now because strong demand in the U.S. during the coming summer driving season is essential to balance the market, Mr. Kettenmann said. Those gasoline stockpiles need to start a steady string of strong draws to show that is happening, he added.

"This is telling me we're not going to see the same demand response from the consumer that you've seen in (recent years) that would right size the market," Mr. Kettenmann said. "We remain firmly in a cautious stance on oil prices."

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Gasoline futures pared gains though it did rebound to about where it was before EIA's data release. It recently traded up 0.9% to $1.5274 a gallon.

The draw from crude inventories not only missed API estimates, it was also half of the 1.8-million-barrel drawdown predicted by analysts and traders surveyed by The Wall Street Journal. Production grew another 28,000 barrels a day to 9.3 million, now up 5.3% from a year ago.

Refinery utilization did shrink by 0.8 percentage points, but is still at 93.3%, near historic highs and up 3.6 percentage points from a year ago. While that might help oil grow consumption, it may not help the markets on the whole if it just ends up pumping more gasoline into a market not burning it up as quickly as refiners churn it out.

"The numbers look bearish on several fronts," said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates.

But traders should not get overly worried, said Ryan McKay, commodity strategist at TD Securities in Toronto. His firm is one that has been calling for $60 oil by the end of summer and recently reiterated that call. It is not uncommon for there to be a lull in demand at this time of year and the coming summer driving season should help the market when it arrives soon, Mr. McKay said.

"People are expecting the demand to keep going strong into the summer, but it has just leveled off a bit," he said. "A draw would have been great, but I think they're definitely going to be coming soon. "

Distillates in storage, including heating oil and diesel, did decline by 562,000 barrels, compared with expectations for a 600,000-barrel increase. API had estimated a 436,000 fall.

Diesel futures flipped to gains, recently up 0.1%, to $1.4687 a gallon.

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

May 03, 2017 12:06 ET (16:06 GMT)