Oil Climbs as U.S. Stockpiles Shrink

By Timothy Puko Features Dow Jones Newswires

Oil prices are holding to small gains Wednesday on falling U.S. inventories.

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Crude storage levels fell by 7.6 million barrels in the week ended Friday, the U.S. Energy Information Administration said Wednesday morning. That is more than double the draw estimated by analysts surveyed by The Wall Street Journal and nearly confirmed a drawdown of 8.1 million barrels that the American Petroleum Institute estimated Tuesday evening.

The market had surged after that report Tuesday, sending prices higher into the morning. It has pared gains since the EIA report Wednesday morning, likely from automated-trading systems that are following a pattern from recent months of selling off after similar data or reports that might indicate an end of oversupply in the markets, brokers said.

Light, sweet crude for August delivery recently gained 25 cents, or 0.6%, to $45.29 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 1 cents, or 0.02%, to $47.53 a barrel on ICE Futures Europe. They had both traded at gains much larger -- beyond 2% -- before the EIA's data release at 10:30 a.m. EDT.

The EIA's weekly storage update for the U.S., the world's largest consumer, is considered as a leading indicator of the balance between supply and demand. It has become especially important in recent months as market watchers await signs that output cuts from the world's big exporters are affecting a longstanding glut.

Commercial crude stockpiles fell to 495 million barrels, EIA said. It is the 11th decline in the last 13 weeks.

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Gasoline stockpiles also fell by 1.6 million barrels, compared with analysts' expectations of a 300,000-barrel addition. That helped bring total commercial stocks of crude and all oil-based products down 3.9 million barrels to 1.3 billion barrels. That is down 1.2% from a year ago.

"Those were bullish stats," said Scott Shelton, broker at ICAP PLC. But "the market loves rallying for no reason, and then selling off on good data."

That has been a pattern for several months, with many traders still skeptical of a changing market because U.S. production is rising and stockpiles aren't falling as quickly as some expected. Commercial crude levels, at 495 million barrels, are still 0.9% higher than they were a year ago, according to EIA data. U.S. production rose 0.6% in the past week to 9.4 million barrels a day. It was at just 8.6 million a year ago.

The rest of Wednesday's trading will be critical, brokers said. Automated systems that follow momentum have taken such sway in the market, that the negative momentum from the past several months has become hard to break.

"If this settles just barely unchanged today, that's horrible," said Kyle Cooper, a consultant for Ion Energy Group in Houston. "It tells you how many (bearish traders) are out there."

U.S. production is expected to increase in 2018, albeit at a lower rate than previously estimated. Tuesday's revised short-term energy outlook report from the EIA showed a lower production forecast for 2018 to 9.9 million barrels a day, slightly down from around 10 million before. That would still set the record for annual production, exceeding 9.6 million barrels a day in 1970. It would also be higher than the estimated production for 2017, at 9.3 million barrels a day.

"There's been speculation of how long U.S. production would continue to be able to rise considering the selloff we've seen in recent months. That was the first official sign that there could be some downgrades coming," said Ole Hansen, head of commodity strategy at Saxo Bank, on the new report.

Gasoline futures recently gained 0.1%, to $1.5199 a gallon, and diesel futures lost 0.3%, to $1.4723 a gallon.

--Justin Yang contributed to this article.

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

(END) Dow Jones Newswires

July 12, 2017 11:53 ET (15:53 GMT)