Crude futures eked out more gains in Asia on Thursday as investors are interpreting the latest hefty decline in U.S. crude inventories to be a harbinger of future demand.
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Oil prices shot up over 3% overnight after data from the Energy Information Administration showed U.S. crude stockpiles dropped 5.2 million barrels in the week ended May 5, far exceeding market expectations. The reading marks the biggest weekly drawdown since December. The surprise decrease in gasoline and distillate inventories also helped mitigate worries that U.S. commuters weren't soaking up enough gasoline to offset supply.
Gasoline demand rose to the highest since late March to over 9.2 million barrels a day, but still down 2.4% from the same period last year, according to the data.
"The data suggests that U.S. oil consumption remains robust," said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, noting that overall inventories in terms of days of supply are closest to the six-year historic average this year.
Nonetheless, the fact that the overnight bounce had already lost steam in Asia trade could show that the market was overwhelmingly bearish, say some analysts.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June traded at $47.55 a barrel at 0237 GMT, up 0.4% in the Globex electronic session. May Brent crude on London's ICE Futures exchange also up 0.4% to $50.43 a barrel.
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"The overhang is still very big and probably will be harder to decrease because of the resumed production from Libya and Nigeria," said Gao Jian, an energy analyst at SCI International. Libya's most recent production reportedly climbed as high as 800,000 barrels a day, the highest since 2014, while Nigeria is set to crank up production after reaching an agreement with local insurgents.
While the Organization of the Petroleum Exporting Countries and Russia have delivered on their pledges to cut their combined production by 1.8 million barrels a day, investors believe more needs to be done in order to bring the market back to balance.
"Oil prices above $40 is a profitable level for most U.S. shale producers to keep pumping. This means OPEC must do more than just rolling over the production cut deals in order to maintain this price floor," said Mr. Gao.
Nymex reformulated gasoline blendstock for June edged 0.6% higher to $1.5484 a gallon, while diesel climbed 0.5% at $1.4824. ICE gasoil for May was last at $446.75 a metric ton, up 0.6% from previous settlement.
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(END) Dow Jones Newswires
May 10, 2017 23:36 ET (03:36 GMT)