Oil Prices Rally on Report of Drop in U.S. Inventory

By Timothy Puko Features Dow Jones Newswires

Oil prices are posting another day of big gains after data showing a drop in U.S. stockpiles reignited a two-week-long rally.

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Light, sweet crude for August delivery recently gained $1.03, or 2.3%, to $46.16 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.02, or 2.1%, to $48.81 a barrel on ICE Futures Europe. The gains cancel out about half of the losses from a downturn Wednesday, and restart a pattern going back to late June in which gains of about 2% or more a day became common.

Crude levels in U.S. storage fell by 6.3 million barrels in the week ended Friday, the U.S. Energy Information Administration said Thursday morning. That is almost three-times the expectations of a 2.5-million-barrel increase from analysts surveyed by The Wall Street Journal. And it exceeded an industry estimate of a 5.8-million-barrel decline that was released Tuesday and had initially sent crude prices inching higher.

Storage levels are often a widely watched measure of supply and demand, but have drawn even more interest in recent months as traders try to gauge the impact of cutbacks pledged by the world's biggest exporters. Stockpiles have been holding near record highs world-wide despite those cuts and traders have been waiting for more evidence that that can change.

"It is giving people short-term hope," Mark Waggoner, president of brokerage Excel Futures said of Wednesday's report.

EIA also said gasoline stockpiles fell by 3.7 million barrels, compared with analysts' expectations of a 1.4-million-barrel decrease. API had estimated a 5.7-million-barrel fall in gasoline stocks.

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Distillates in storage, including heating oil and diesel, declined by 1.9 million barrels, compared with expectations for a 100,000-barrel decrease. API had estimated a 372,000-barrel increase in distillate stocks.

Both gasoline and diesel futures added to gains after the data release. Gasoline futures recently gained 2% to $1.532 a gallon and diesel futures gained 1.3% to $1.4971 a gallon.

"This number is just bullish across the board," said Scott Shelton, broker at ICAP PLC. But he also added that prices could retreat in the afternoon, echoing more long-term concerns also shared by Mr. Waggoner. "I think the market is still kind of afraid of its own shadow," Mr. Shelton added.

Oil's rally in recent weeks was spurred in part by early signs that U.S. production may not be as resilient in the face of low prices as many believed. But that rally was always tentative and fueled largely by investors trying to cover short positions, rather than a real shift in sentiment, said Michael Hiley, a trader at LPS Futures LLC.

And, in fact, U.S. production rose 88,000 barrels a day last week, EIA said. Now beyond 9.3 million barrels a day, it is up nearly 11% from a year ago.

Reports Russia wouldn't support more production cuts with the Organization of the Petroleum Exporting Countries had pressured the price Wednesday. Adding to oil's headwinds, Libya and Nigeria, OPEC members that were exempt from production quotas, have been continuing to ramp up output, undermining the effect of the production caps from other members.

"The scope for further price rises is gradually diminishing," said a note from Commerzbank.

Justin Yang and Alison Sider contributed to this article

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

Oil prices rebounded slightly Thursday after data showing a drop in U.S. stockpiles reignited a two-week-long rally.

Light, sweet crude for August settled up 39 cents, or 0.9%, at $45.52 a barrel on the New York Mercantile Exchange. Brent gained 32 cents, or 0.7%, to $48.11 a barrel on ICE Futures Europe. Both are up nine sessions in the past 11.

The gains canceled out some the big losses from Wednesday's session. But gains had been much larger early in the day only to retreat almost all the way back to unchanged in the last 90 minutes before settlement.

Crude levels in U.S. storage fell by 6.3 million barrels in the week ended Friday, the U.S. Energy Information Administration said Thursday morning. That is almost three times the expectations of a 2.5 million-barrel increase from analysts surveyed by The Wall Street Journal. And it exceeded an industry estimate of a 5.8 million-barrel decline that was released Tuesday and had initially sent crude prices inching higher.

Storage levels are often a widely watched measure of supply and demand, but have drawn even more interest in recent months as traders try to gauge the impact of cutbacks pledged by the world's biggest exporters. Stockpiles have been holding near record highs world-wide despite those cuts and traders have been waiting for more evidence that can change.

"It is giving people short-term hope," Mark Waggoner, president of brokerage Excel Futures, said of Wednesday's report.

EIA also said gasoline stockpiles fell by 3.7 million barrels, compared with analysts' expectations of a 1.4-million-barrel decrease. API had estimated a 5.7-million-barrel fall in gasoline stocks.

Distillates in storage, including heating oil and diesel, declined by 1.9 million barrels, compared with expectations for a 100,000-barrel decrease. API had estimated a 372,000-barrel increase in distillate stocks.

Both gasoline and diesel futures added to gains after the data release. Gasoline futures gained 2.63 cents, or 1.8%, to $1.5287 a gallon. Diesel gained 0.34 cents, or 0.2%, to $1.4819 a gallon.

"This number is just bullish across the board," said Scott Shelton, broker at ICAP PLC. But he also added that he expected prices to retreat in the afternoon, echoing more long-term concerns also shared by Mr. Waggoner. "I think the market is still kind of afraid of its own shadow, " Mr. Shelton added.

Oil's rally in recent weeks was spurred in part by early signs that U.S. production may not be as resilient in the face of low prices as many believed. But that rally was always tentative and fueled largely by investors trying to cover short positions, rather than a real shift in sentiment, said Michael Hiley, a trader at LPS Futures LLC.

And, in fact, U.S. production rose 88,000 barrels a day last week, EIA said. Now beyond 9.3 million barrels a day, it is up nearly 11% from a year ago and nearly back at its 10-month high.

Reports Russia wouldn't support more production cuts with the Organization of the Petroleum Exporting Countries had pressured the price Wednesday. Adding to oil's headwinds, Libya and Nigeria, OPEC members that were exempt from production quotas, have been continuing to ramp up output, undermining the effect of the production caps from other members.

Those same concerns likely played a role in Thursday afternoon's retreat, said Peter Donovan, broker for Liquidity Energy LLC in New York. It will take several more weeks of falling U.S. stockpiles to accelerate the rally, he added.

"One thing we've seen in these market is rarely do these [EIA] stats have holding power unless it's going on for a sustained period of time," Mr. Donovan said.

--Justin Yang and Alison Sider contributed to this article.

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

(END) Dow Jones Newswires

July 06, 2017 15:51 ET (19:51 GMT)