Oil built on Tuesday's sharp gain in Asian trading Wednesday, supported by views that U.S. inventories may have fallen sharply last week.
Continue Reading Below
Supplies are estimated to have dropped 10.2 million barrels, says the American Petroleum Institute. The industry group's figure is quadruple the projected drop to be seen in later Wednesday's weekly report from the Energy Information Administration. If that release shows a similar decline to API, prices will rise even more, said Michael McCarthy, an analyst at CMC Markets.
That as "oil prices are returning to a high level of volatility," he added.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in September recently traded up 0.9% at $48.34 a barrel in the Globex electronic session. September Brent crude on London's ICE Futures exchange rose 0.7% to $50.50.
While Nymex September diesel gained 0.3% to $1.5773 a gallon, reformulated gasoline blendstock rose just 0.1% to $1.5732 as API said gasoline supplies rose slightly last week. August ICE gasoil was recently 1.1% higher at $466.75 a metric ton.
Oil prices have been in the doldrums for three years, which was anticipated to result in resurgent U.S. oil production getting pushed down. Instead, output is projected to hit record highs next year.
Continue Reading Below
The EIA noted in a new report Tuesday that producers map out their oil-drilling plans based on cash flow. In the Permian shale play, where most of future U.S crude-output growth is expected to come from, operators have been able to "maintain positive cash flow because of lower costs, higher productivity and increased hedging activities" by producers who many have sold future output at prices above $50 a barrel, the agency added.
It means the Organization of the Petroleum Exporting Countries must device a plan to keep prices at a level that isn't too encouraging for additional U.S. production but still profitable enough for their own members, said Gao Jian, an analyst at SCI International. The group had led an agreement to cut production by 2% of the daily global average this year, but the pact's effectiveness remains very much in question.
As a result, Saudi Arabia on Monday said not only will it reduce August exports by a million barrels a day versus year-earlier levels but that the kingdom will also monitor export levels to gauge peers' compliance levels. As Iraq and Ecuador are producing more oil than the OPEC deal mandates, "cracks might start to emerge amongst the cooperating members," said BMI Research.
Write to Jenny W. Hsu at firstname.lastname@example.org
(END) Dow Jones Newswires
July 26, 2017 00:01 ET (04:01 GMT)