Crude futures prices fell Thursday as increased global oil production overshadowed news of declining inventories and a prediction of higher global demand.
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Oil was hit as investors continued to digest news from Wednesday of increased production. While U.S. oil inventories logged their 11th decline in 13 weeks, and the largest since September, daily average output was nearly 9.4 million barrels, the highest figure for a week in two years. Libyan and Nigerian oil production is also increasing, adding to the bearish mood.
Prices "are likely to remain at the lower end of the recent trading range until U.S. oil investment and production decline," said Rob Haworth, senior investment strategist at U.S. Bancorp Wealth Management.
Brent crude, the global oil benchmark, fell 0.69% to $47.41 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.64% at $45.20 a barrel.
The Organization of the Petroleum Exporting Countries said on Wednesday that its members' combined average daily output rose 1.4% last month to 32.6 million barrels. That was in part on production gains in Libya and Nigeria, which aren't subject to the OPEC-led production-cut agreement that has been in place this year.
"OPEC is already producing significantly more crude oil than will be needed in 2018," said Commerzbank.
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The production rise was expected because Saudi Arabia usually increases crude output at this time of year to meet summer electricity demand. However, the results still spurred skepticism about the production deal, which aims to erase about 2% of the world's daily output with the help of non-cartel suppliers such as Russia.
Many traders and analysts say most of the agreement's benefits are being reaped by U.S. producers, who are flooding the market. Of late, there have also been increasing calls from some OPEC members to impose an output cap on Nigeria and Libya. Without some production restraints on these two nations, oil prices have little chance of returning to the $50 zone in the near term, said Stuart Ive of OM Financial.
There was some positive news for oil.
The International Energy Agency's monthly oil report predicted on Thursday that global demand should grow by 1.5% this year to 98 million barrels a day, driven by rising consumption in Germany and the U.S. in the second quarter.
"Oil consumption grows at a healthy pace. At least you have one part of the equation that is healthy," said Bjarne Schieldrop, chief commodities analyst at SEB Markets, referring to the report.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.95% to $1.51 a gallon. ICE gasoil changed hands at $434.25 a metric ton, down $3.00 from the previous settlement.
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Oil prices flipped to gains Thursday with growing momentum behind the International Energy Agency's prediction of higher global demand.
In its closely watched monthly oil market report, the IEA said it now expects global demand to rise by 1.5% this year to 98 million barrels a day, driven in part by rising consumption in Germany and the U.S. during the second quarter. The Paris-based adviser to governments and companies raised its 2017 demand forecast by 100,000 barrels a day, compared with a previous estimate last month.
Oil prices initially fell after the IEA report, with investors focused on rising production in June from the Organization of the Petroleum Exporting Countries, which hit its highest level of the year at 32.6 million barrels a day. But there are signs that demand, growing faster than expected, will call for all of that oil and ease oversupply that has lingered for about three years, analysts said.
Light, sweet crude for August delivery recently gained 39 cents, or 0.9%, to $45.88 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 41 cents, or 0.9%, to $48.15 a barrel on ICE Futures Europe. They had both traded at losses, about $1 lower than their recent price, before surging to gains around the traditional start of U.S. trading hours.
Thursday's move puts U.S. oil on course for a four-session winning streak and 13 sessions of gains in the last 15. The rally hasn't put oil anywhere near the $60-mark that many had predicted it would be on its way to by now, but it does show that investors may believe the 11-month lows the market hit at $42.53 in June are about the bottom, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.
"I think maybe there's more confidence of staying in the $40s," he said. "There's support under the market where we are now."
U.S. producers need oil at $55 a barrel to keep growing production and stay profitable, but would need to improve their efficiency to do it at $45, analysts at Goldman Sachs Group Inc. said Thursday. The U.S. Energy Information Administration on Tuesday lowered its production forecast for 2018 to 9.9 million barrels a day, slightly down from around 10 million before.
The IEA on Thursday also called the change in demand "a dramatic acceleration." Demand accelerated in the second quarter, growing to 97.4 million barrels a day -- 1.5 million barrels a day faster than in the second quarter of 2016. It warned that while real-time data doesn't show this causing oil stockpiles to shrink, that may change and show they are as new data comes in.
The market has already been rising in part from falling stockpiles in the U.S. On Wednesday the EIA reported the 11th decline in U.S. crude stockpiles in just 13 weeks. At 7.6 million barrels, the drawdown for the week that ended Friday was the largest since September, according to the EIA.
"We have now witnessed two weeks in a row of massive U.S. inventory draws," analysts at Piper Jaffray Cos.' Simmons & Co. International, wrote in a note to clients Thursday morning. They said the rising global demand, and its outperformance of recent expectations should be the primary takeaway from the IEA report.
The downside is that there are production gains in Libya and Nigeria, which aren't subject to an OPEC-led agreement to cut about 2% of the world's daily output. Production from those two countries, in particular, has surged in recent months, undermining the attempted cutbacks and helping to derail widespread predictions of a rally.
OPEC members have considered new output caps on Nigeria and Libya. Without some production restraints on these two nations, oil prices have little chance of returning to the $50 zone in the near term, said Stuart Ive of OM Financial.
Gasoline futures recently gained 0.5% to $1.5279 a gallon. Diesel futures lost 0.6% to $1.4826 a gallon.
--Christopher Alessi, Justin Yang and Jenny W. Hsu contributed to this article.
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(END) Dow Jones Newswires
July 13, 2017 11:40 ET (15:40 GMT)