Oil prices turned lower Wednesday after a smaller-than-anticipated drop in gasoline stockpiles renewed concerns about demand heading into summer driving season, even as OPEC officials in Vienna signaled they are likely to extend output cuts into next year.
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Memorial Day weekend typically kicks off a period of high demand for fuel in the U.S., when drivers take to the roads for summer travel.
But the U.S. Energy Information Administration reported Wednesday that gasoline stockpiles dropped by just 787,000 barrels last week, compared to a 1 million barrel decrease forecast by analysts and traders surveyed by The Wall Street Journal.
"That draw is not up to par, and it disappointed accordingly," said Bob Yawger, director of the futures division of Mizuho Securities USA Inc. "It really has pulled the rug out from under the energy market here," he said.
The move lower could put an end to a five day streak of gains--the longest for oil prices since April.
U.S. crude futures recently fell 13 cents, or 0.25%, to $51.34 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, fell 7 cents, or 0.13%, to $54.08 a barrel on ICE Futures Europe.
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Gasoline futures fell 1.16 cents, or 0.7%, to $1.6598 a gallon. Diesel futures fell 0.16 cent, or 0.1%, to $1.6051 a gallon.
Worries about anemic demand for fuel outweighed a 4.4 million barrels decrease in crude stockpiles, double the drop predicted by analysts surveyed by The Wall Street Journal were anticipating and the seventh straight week of declining inventories.
Many market observers have been anxiously waiting for bloated U.S. stockpiles to shrink, as an indicator that production cuts by the Organization of the Petroleum Exporting Countries and other major exporters are chipping away at the global oil glut.
Oil has been on a roller-coaster ride since March, torn between concerns about mounting stockpiles and greater optimism regarding global demand. It has gained roughly 5% this month, buoyed by reports that Saudi Arabia is garnering support within OPEC for a potential nine-month extension of ongoing production cuts.
In Vienna, Iraq oil minister Jabbar al-Luaibi said Wednesday that he supports extending the cuts for another nine months. Iraq has been seen as a possible hold out to extending the deal. A joint committee comprised of OPEC and non-OPEC members also recommended extending the cuts for nine months.
If confirmed, "we will see a bounce in the market very quickly," said OM Financial's Stuart Ive, as "there are plenty of reasons to think that demand will be increasing." He thinks oil could get toward $65 by year's end provided there is compliance by all participants to the output cuts.
Members of the cartel want global inventories to fall back to their five-year average, analysts say, in order to ease fears about an oversupply in the market. In the long term, however, traders remain concerned that U.S. shale producers can ramp up production to offset any cuts by OPEC.
"The ability of the U.S. shale sector to revive itself, restructure at a corporate level, and bring back on tap incremental oil production is a deep challenge to OPEC's oil price policy," said Nizam Hamid, head of strategy in Europe at WisdomTree Investments Inc.
Biman Mukherji contributed to this article
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(END) Dow Jones Newswires
May 24, 2017 12:33 ET (16:33 GMT)