Crude Rally Continues on U.S. Output, Inventory Data

By Sarah McFarlane and Alison Sider Features Dow Jones Newswires

Oil futures continued their climb for a sixth straight session Thursday as last week's drop in U.S. production stoked hopes that the slide in prices since May is starting to take a toll on the country's shale output.

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U.S. crude futures rose 19 cents, or 0.42%, to $44.93 a barrel on the New York Mercantile Exchange. Brent crude, the global oil benchmark, rose 11 cents, or 0.23%, to $47.42 a barrel on London's ICE Futures exchange.

Oil prices have had their longest streak of gains since April. But oil is still in a bear market, and observers said the rally may be running out of steam -- U.S. crude futures rose as high as $45.45 a barrel during trading Thursday but pared gains as investors took profits.

"Every once in awhile the fundamentals kick in -- people realize there's nothing super bullish there to keep driving it higher," said Ric Navy, senior vice president for energy futures at RJ O'Brien & Associates LLC.

Market observers said prices are likely to remain range-bound for now.

"The recent bounce in crude feels more like a technical positioning move than a change in fundamentals or sentiment," analysts at Credit Suisse said. Still, the analysts added, "it does feel as if a wave of selling has ebbed for now."

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The U.S. Energy Information Administration said Wednesday that daily average U.S. output last week fell 100,000 barrels to 9.25 million, coinciding with a tropical storm which resulted in some production shutdowns.

"It's not clear how much of that was due to the tropical storm in the Gulf last week," said Tom Pugh, analyst at consultancy Capital Economics. "If it continues to be a bit of a trend -- either a fall in production or stable production -- then we could see a more sustained rally."

Earlier this month U.S. oil output rose to its highest level since August 2015. The resiliency and the increasing efficiency demonstrated by U.S. producers has largely foiled the Organization of the Petroleum Exporting Countries' effort to lower global inventories. Since January, when OPEC members and Russia began cutting output, oil prices have fallen 16% and the glut has remained.

Analysts at Société Générale said Thursday that oil supplies have been slower to shrink than anticipated. They cut their forecast for U.S. crude prices by $7.50 a barrel to $47.50 in the third quarter and $50 the fourth quarter.

But some oil investors are hoping that recent low prices will U.S. producers down and bring the market to back to a balance.

"We believe that prices have reached a level near $45/bbl. at which US producers should start to adjust their drilling activity," analysts at Goldman Sachs said in a research note Wednesday.

"The low prices has finally spilled over to the production side and we believe production should fall further throughout the year," said OCBC economist Barnabas Gan.

But Wednesday's weekly report from the EIA also had many bearish factors, including a rise in crude stocks. Consultancy Energy Aspects noted tropical storm Cindy "did not impact the discharge of imported crude," which rose 140,000 barrels last week.

"With the window of opportunity to draw down crude stocks over the summer closing, the market is already fretting about the coming refinery maintenance season," the firm said.

Moreover, despite the onset of U.S. driving season, gasoline demand in the last four-week period fell 2.7% from a year earlier while production of gasoline increased.

Société Générale said last week's modest declines in U.S. gasoline and distillate supplies were insufficient to push a broader inventory measure lower, adding the report shows "no sign of rebalancing and nothing to indicate any change to the bearish status quo for the global oil markets."

Gasoline futures rose 0.23 cent, or 0.16%, to $1.4856 a gallon. Diesel futures rose 1.3 cents, or 0.91%, to $1.4460 a gallon.

--Jenny W. Hsu contributed to this article.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

June 29, 2017 16:15 ET (20:15 GMT)