Oil Prices Advance on Momentum From Recent Inventory Declines

By Timothy Puko Features Dow Jones Newswires

Oil prices rose to fresh two-month highs Thursday on building momentum from recent inventory declines.

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Light, sweet crude for September delivery settled up 29 cents, or 0.6%, at $49.04 a barrel on the New York Mercantile Exchange. With U.S. prices settling above the $49 mark for the first time since May 30, momentum-based traders could be poised now to send prices back above $50 a barrel, too, brokers said. That could mark the end of a monthslong chain of selloffs that scuttled a widely expected rally toward $60.

"Today's market action suggests that the recent rally has long legs and full capitulation by the bears maybe at hand," said Peter Cardillo, chief market economist at First Standard Financial in New York.

The Energy Information Administration said Wednesday that U.S. crude stockpiles fell by a larger-than-expected 7.2 million barrels last week -- the fourth-straight weekly drop. Supplies of gasoline and distillates also fell, while output abated slightly.

"Recent inventory draws have been favorable and suggest we are beginning to rebalance," analysts at Goldman Sachs Group Inc. said Thursday in a note to clients.

Demand has been strong in the U.S. and abroad. U.S. gasoline demand is rising and likely to break record highs soon, ING Bank said Thursday. Gasoline futures are increasing as refineries run hard, said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC. And U.S. exports abroad showed a "meaningful increase," said Piper Jaffray Cos.' Simmons & Co. International.

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But many warned of big questions, too. International demand could simply be from international buyers refilling their storage. And increasing exports are necessary to keep easing a glut in U.S. storage, the Simmons analysts said.

Prices could still be locked into a range between $45 and $50 a barrel because higher prices would probably support an oversupply from new drilling in the U.S., the Goldman analysts said. Signs of more inventory declines in other industrialized nations are also likely necessary before it is clear that a glut is gone from storage, which has been at historically high levels, they added.

Crude demand by U.S. refiners will likely recede in September and October when seasonal maintenance work begins, Société Générale noted. Meanwhile, long-term Chinese oil demand is expected to lose some steam as the country veers toward green energy and natural gas, said BMI Research.

Some selling early Thursday likely came from producers taking advantage of higher prices to sell future production, Scott Shelton, broker at ICAP PLC, said in a note. And, as the other analysts suggested, the market will need new buyers to balance that out.

"I am not convinced that these kinds of buyers will show up," Mr. Shelton added. "I don't see the next incremental buyer and I see more natural sellers. I am still bullish, but overall I could see this being a grind."

Gasoline futures gained 2.73 cents, or 1.7%, to $1.6446 a gallon, a three-session winning streak. Diesel futures rose 0.79 cents, or 0.5%, to $1.6032 a gallon, a four-session winning streak.

--Justin Yang and Jenny W. Hsu contributed to this article.

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

(END) Dow Jones Newswires

July 27, 2017 15:23 ET (19:23 GMT)