Oil Drops on Disappointing Inventory Data

By Neanda Salvaterra and Jenny W. Hsu Features Dow Jones Newswires

Oil prices edged up on Wednesday, following declines overnight, as an industry-group reading showed a sizable draw for last week in U.S. oil and gasoline stockpiles.

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The global oil benchmark Brent crude, for July delivery, rose 1.2% to $51.06 a barrel on London's ICE Futures Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.0% at $48.16 a barrel.

Overnight Brent slid to $50 per barrel, "its lowest level since the end of March," Commerzbank analysts said in a recent report.

The price decline came amid accelerating output from Libya and continued uncertainty over whether the Organization of the Petroleum Exporting Countries will extend its production-cut deal at its meeting in Vienna on May 25.

Some buyers returned to the market, though, after the American Petroleum Institute said U.S. oil inventories fell 4.2 million barrels last week and bulging gasoline stockpiles dropped 1.9 million barrels. Both are larger than the supply drops anticipated in the government's report from the Energy Information Administration later Wednesday.

"The small rebound is due to the API report of yesterday," said Olivier Jakob from the Switzerland-based consultancy Petromatrix. "One needs to be a little careful though because the last time the API was reporting a stock build, the DOE [Department of Energy] was reporting a stock draw. So there is a risk today that the [U.S.] doesn't report the same stock levels as the API."

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The picture for the world's output has been recently muddled by reports of reductions from some large producers amid increases from others.

The production cuts implemented by OPEC and Russia aren't only being countered by rising oil production in the U.S.--oil production is also rising noticeably in Brazil. The responsible authority there, the ANP, reported that production in March had increased by 12.6% year-over-year to reach 2.55 million barrels a day.

"We need to see a sustainable uptrend" in prices "and we are definitely not there yet," said Phin Ziebell, an economist at National Australia Bank.

Uncertainty over the OPEC-led production curtailments has been weighing on oil prices of late.

Even though most OPEC members have voiced support for extending the cuts, skepticism of their commitment and noncommittal attitude of Russia--the world's biggest oil producer--is keeping investors cautious.

"You have to wonder what the incentive is for countries like Russia to keep cutting its own production when it is clear the benefits of the cuts are flowing straight to the U.S. shale producers," Mr. Ziebell said.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 2.1% to $1.54 a gallon. ICE gasoil changed hands at $445.75 a metric ton, down $1.25 from the previous settlement.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

Oil prices edged up on Wednesday with traders anticipating government data due Wednesday will show drawdowns in U.S. oil and gasoline stockpiles.

Light, sweet crude for June delivery recently gained 27 cents, or 0.6%, to $47.93 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 41 cents, or 0.8%, to $50.87 a barrel on ICE Futures Europe.

The American Petroleum Institute said late Tuesday that U.S. oil inventories fell 4.2 million barrels last week and gasoline stockpiles dropped 1.9 million barrels. Both are larger than the supply drops anticipated in the government's report from the Energy Information Administration on Wednesday.

"The small rebound is due to the API report of yesterday," said Olivier Jakob from the Switzerland-based consultancy Petromatrix.

Holding those gains would create a rare win for oil markets that have been on a slide for nearly a month now. Resilient stockpiles in the U.S. have made traders question whether a deal from global exporters to cut output will fulfill its goal of easing global oversupply, and that has waylaid a widely expected rally.

Oil prices just took some of their biggest losses of the year Tuesday in part from analysts' expectations that Wednesday's EIA data will show gasoline and other refined-fuel stockpiles grew by a combined 1.3 million barrels last week. But the API data shows gasoline stockpiles alone falling -- not rising -- by 1.9 million barrels, the important point for Wednesday's trade, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates, in a note.

It is rare for gasoline inventories to fall at this time of year ahead of summer driving season and, if they did, it would be a big relief to a market that has been stricken by a growing surplus and weighing on crude prices in recent weeks, Mr. Ritterbusch added. Gasoline futures were leading oil markets higher Wednesday morning, recently up 1.3%, to $1.533 a gallon.

"The gasoline market has been the 'tail wagging the dog' during the past month and...futures are capable of providing some upside lead for a few sessions" if stockpiles did fall last week, Mr. Ritterbusch said

But the rally is still small, capped by lingering concerns about oversupply world-wide. The picture for the world's output has been recently muddled by reports of reductions from some large producers amid increases from others.

The production cuts implemented by OPEC and Russia aren't only being countered by rising oil production in the U.S. -- oil production is also rising noticeably in Brazil. The responsible authority there, the ANP, reported that production in March had increased by 12.6% year-over-year to reach 2.55 million barrels a day.

"We need to see a sustainable uptrend" in prices "and we are definitely not there yet," said Phin Ziebell, an economist at National Australia Bank.

Uncertainty over the OPEC-led production curtailments has been weighing on oil prices of late.

Even though most OPEC members have voiced support for extending the cuts, skepticism of their commitment and noncommittal attitude of Russia -- the world's biggest oil producer -- is keeping investors cautious.

"You have to wonder what the incentive is for countries like Russia to keep cutting its own production when it is clear the benefits of the cuts are flowing straight to the U.S. shale producers," Mr. Ziebell said.

Diesel futures gained 0.4%, to $1.4737 a gallon.

Write to Timothy Puko at tim.puko@wsj.com, Neanda Salvaterra at neanda.salvaterra@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

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

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."

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)