Oil Prices Rebound Ahead of Expected Drop in U.S. Stockpiles

By Timothy Puko Features Dow Jones Newswires

Oil prices posted only their third gain of the past nine sessions on Tuesday as traders prepared for what is expected to be the latest in a string of inventory declines in the U.S.

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Light, sweet crude for July settled up 79 cents, or 1.7%, at $48.19 a barrel on the New York Mercantile Exchange. Brent gained 65 cents, or 1.3%, to $50.12 a barrel on ICE Futures Europe. Both had their biggest daily gains since May 26.

Oil flipped up sharply from losses midday, but there was little consensus on any one particular reason behind the reversal. Many were mildly surprised after 24 hours of low-volatility trading and prices stuck between about $47 and $48 a barrel for three sessions.

"It's sort of a sneaky rally," said Michael Hiley, a trader at LPS Futures LLC.

The U.S. Energy Information Administration is likely to report a ninth-straight week of falling crude stockpiles when it gives its weekly inventory update Wednesday morning, according to The Wall Street Journal's survey of 12 analysts and traders. Their consensus average forecast puts crude stockpiles down another 3.5 million barrels and gasoline stockpiles down 200,000 barrels.

Traders were likely positioning themselves around expectations for that report, said Matt Smith, director of commodity research at ClipperData. The American Petroleum Institute will release its U.S. crude stock inventory figures for last week later Tuesday.

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"With the API report coming on and the EIA report tomorrow, it brings back focus on those inventories and the expectation we'll continue to see a seasonal trend of them drawing down," Mr. Smith said. "We're at a much quicker pace (of drawdowns) than we were on last year."

Analysts point to a tightening of the oil supply since OPEC and other producers agreed to cut production by 1.8 million barrels a day this year. U.S. stockpiles have been the slowest to change since those cutbacks went into effect, spoiling a rally that had originally taken oil above $50 a barrel, analysts and brokers have said.

In addition to the change in stockpiles, the market may also be getting a boost from a move by Saudi Arabia and three other Persian Gulf states to severe diplomatic ties with Qatar, a member of the Organization of the Petroleum Exporting Countries. Saudi Arabia and others have long accused Qatar of mingling with the terrorist movement in Iran, an allegation that Qatar has denied.

Some have speculated it could weaken OPEC's ability to collaborate and stick to its cuts. But that is unlikely, Helima Croft, head of commodities strategy at RBC Capital Markets, told the audience at the bank's Global Energy and Power Executive Conference in New York. Qatar has helped spearhead the cuts and has little reason to change strategy, she said. If anything, it could cause delivery and shipment problems that restrict supply and raise prices, said Mark Waggoner, president of brokerage Excel Futures.

"It's just a mess," Mr. Waggoner said.

Gasoline futures gained 1.64 cents, or 1.1%, to $1.5545 a gallon. Diesel futures snapped a five-session losing streak, gaining 0.69 cent, or 0.5%, to $1.4662 a gallon.

--Jenny W. Hsu contributed to this article.

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

Oil prices posted only their third gain of the past nine sessions on Tuesday as traders prepared for what is expected to be the latest in a string of inventory declines in the U.S.

Light, sweet crude for July settled up 79 cents, or 1.7%, at $48.19 a barrel on the New York Mercantile Exchange. Brent gained 65 cents, or 1.3%, to $50.12 a barrel on ICE Futures Europe. Both had their biggest daily gains since May 26.

Oil flipped up sharply from losses midday, but there was little consensus on any one particular reason behind the reversal. Many were mildly surprised after 24 hours of low-volatility trading and prices stuck between about $47 and $48 a barrel for three sessions.

"It's sort of a sneaky rally," said Michael Hiley, a trader at LPS Futures LLC.

The U.S. Energy Information Administration is likely to report a ninth-straight week of falling crude stockpiles when it gives its weekly inventory update Wednesday morning, according to The Wall Street Journal's survey of 12 analysts and traders. Their consensus average forecast puts crude stockpiles down another 3.5 million barrels and gasoline stockpiles down 200,000 barrels.

Traders were likely positioning themselves around expectations for that report, said Matt Smith, director of commodity research at ClipperData.

The American Petroleum Institute, an industry group, said late Tuesday its data for the week showed a 4.6 million-barrel decrease in crude supplies, a 4.1 million-barrel increase in gasoline stocks and a 1.8 million-barrel increase in distillate inventories, according to a market participant.

"With the API report coming on and the EIA report tomorrow, it brings back focus on those inventories and the expectation we'll continue to see a seasonal trend of them drawing down," Mr. Smith said. "We're at a much quicker pace (of drawdowns) than we were on last year."

Analysts point to a tightening of the oil supply since OPEC and other producers agreed to cut production by 1.8 million barrels a day this year. U.S. stockpiles have been the slowest to change since those cutbacks went into effect, spoiling a rally that had originally taken oil above $50 a barrel, analysts and brokers have said.

In addition to the change in stockpiles, the market may also be getting a boost from a move by Saudi Arabia and three other Persian Gulf states to severe diplomatic ties with Qatar, a member of the Organization of the Petroleum Exporting Countries. Saudi Arabia and others have long accused Qatar of mingling with the terrorist movement in Iran, an allegation that Qatar has denied.

Some have speculated it could weaken OPEC's ability to collaborate and stick to its cuts. But that is unlikely, Helima Croft, head of commodities strategy at RBC Capital Markets, told the audience at the bank's Global Energy and Power Executive Conference in New York. Qatar has helped spearhead the cuts and has little reason to change strategy, she said. If anything, it could cause delivery and shipment problems that restrict supply and raise prices, said Mark Waggoner, president of brokerage Excel Futures.

"It's just a mess," Mr. Waggoner said.

Gasoline futures gained 1.64 cents, or 1.1%, to $1.5545 a gallon. Diesel futures snapped a five-session losing streak, gaining 0.69 cent, or 0.5%, to $1.4662 a gallon.

--Jenny W. Hsu contributed to this article.

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

(END) Dow Jones Newswires

June 06, 2017 17:15 ET (21:15 GMT)