Oil prices rose for a third straight day Wednesday, hitting a near two-month high after U.S. data showing a larger-than-anticipated drop in the amount of crude in storage bolstered confidence that the oil market is tightening.
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The U.S. Energy Information Administration reported that U.S. oil stockpiles fell by 7.2 million barrels last week -- well above the 2.6 million barrel drop that analysts surveyed by The Wall Street Journal had predicted.
Oil prices have gone up more than 6% over the last three days as investors have started to come around to the idea that efforts by the Organization of the Petroleum Exporting Countries and other major exporters may actually be paying off.
On Wednesday, U.S. crude for September delivery rose 86 cents, or 1.8%, to $48.75 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 60 cents, or 1.2%, to $50.80 a barrel on ICE Futures Europe. Both benchmarks settled at their highest levels since May 30.
"The market was in a wait-and-see mode -- waiting to see are the OPEC cuts really going to make a difference? Is $45 going to make an impact on U.S. crude production?" said Nick Koutsoftas, portfolio manager at Cohen & Steers.
And after months of false starts and crises of confidence that sent oil prices tumbling into bear-market territory, investors are growing more comfortable that the answer to those questions is "yes."
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While oil storage levels remain high, more than 50 million barrels of oil have been drained from U.S. storage tanks since the end of March. Fears that U.S. producers would swamp the glutted market with more oil are also starting to ease amid signs that companies will slow down in response to lower prices. And Saudi Arabia on Monday said it is cutting not only production but exports, with plans to reduce August shipments by a million barrels a day versus year-earlier levels.
"This narrowing in the U.S. surplus appears sustainable through the rest of this summer and possibly into the fall if the Saudis follow through on their intentions to sharply reduce their exports next month," Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a research note.
The EIA reported that U.S. oil production fell by 19,000 barrels a day last week, driven by a drop-off in Alaskan oil output.
"Is it possible we've maxed out? There is that possibility," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc.
Demand figures have also been encouraging, analysts and traders said. The EIA reported that gasoline inventories fell by 1 million barrels last week and gasoline demand neared a record high.
Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy-trading desk, said prices of different grades of oil around the world are moving closer together -- another sign of an increasingly tight market.
"Either the rebalancing is actually occurring, or the bets being made that it's going to occur," he said.
That is a shift from just a few weeks ago, when investors were questioning production cuts by OPEC and other major producers such as Russia were making a dent in a glut of oil that has weighed on the market for three years.
Still, many analysts and investors believe the oil-price recovery remains tentative.
"We're in a market where it takes four good data points to have a rally and only one to have it tank," said Dan Pickering, head of the asset management arm of Tudor, Pickering Holt & Co. "We're slowly convincing a skeptical market, but the data has to continue to come through."
Gasoline futures rose 2.11 cents, or 1.32%, to $1.6173 a gallon. Diesel futures rose 2.68 cents, or 1.71%, to $1.5953 a gallon.
--Jenny W. Hsu contributed to this article.
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(END) Dow Jones Newswires
July 26, 2017 16:00 ET (20:00 GMT)