Oil Price's Advance Pauses Amid Falling U.S. Inventories

By Justin Yang, Jenny W. Hsu and Alison Sider Features Dow Jones Newswires

Oil prices stalled Thursday but held on to much of the past week's gains, amid continuing signs of inventory drawdowns.

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Brent crude, the global oil benchmark, fell 0.25% to $50.97 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were down 0.18% at $48.66 a barrel.

The Energy Information Administration said 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.

"The reduction of the oversupply is making headway," Commerzbank said, with analysts adding that falling inventories pointed to strong demand growth, as refineries were eager to capture still-healthy margins.

"Is it possible we've maxed out? There is that possibility," said Bob Yawger, director of the futures division at Mizuho Securities USA, adding his voice to the view that there is limited room for U.S. production growth for now because of the industry's capital-spending slump of 2015 and 2016.

Although this thinking has helped spur oil's recent run, the market is now searching for fresh reasons to continue the rally.

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"We've run out of more bullish news. For the market to move higher, it needs some new impetus," said Warren Patterson, commodities strategist at ING Bank.

That could come from Baker Hughes Inc.'s weekly count of active oil rigs, due Friday, which fell by one to 764 in the week ended July 21.

Oil prices are up more than 6% this week as investors have started to support the idea that output-curtailment efforts by the Organization of the Petroleum Exporting Countries and other major producers are beginning to work.

As the U.S. shale boom led to sharp output growth from America, producers in the Middle East and Russia opened their own spigots to defend their market share. That led to a global supply glut that has weighed on prices. But the tide is slowly turning, some say, contending that prolonged low prices may be weeding out high-cost producers and U.S. investors.

Meanwhile, global oil demand is rising at a steady pace, mostly due to strong appetite in China, India and other emerging countries in Asia.

Still, traders are treading lightly and are mindful that last week's hefty inventory decline may not be sustainable.

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.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.26% to $1.59 a gallon. ICE gasoil changed hands at $472.75 a metric ton, up $2.50 from the previous settlement.

Write to Jenny W. Hsu at jenny.hsu@wsj.com and Alison Sider at alison.sider@wsj.com

Oil prices set new highs going back nearly two months, but a strong rally has stalled with analysts and brokers warning there may not be enough big buyers to keep up momentum from recent inventory declines.

Light, sweet crude for September delivery recently gained 10 cents, or 0.2%, to $48.85 a barrel on the New York Mercantile Exchange. It briefly surged to $49.08 -- its highest intraday price since June 1 -- after the traditional start of U.S. trading hours then almost immediately retreated to unchanged. Brent, the global benchmark, gained 20 cents, or 0.4%, to $51.17 a barrel on ICE Futures Europe.

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.

However, they warned that prices are still likely 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. 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.

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. And U.S. exports abroad showed a "meaningful increase," said Piper Jaffray Cos.' Simmons & Co. International.

But there, too, are questions. 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.

"We've run out of more bullish news. For the market to move higher, it needs some new impetus," said Warren Patterson, commodities strategist at ING.

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 of Thursday's selling is likely 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 recently gained 1%, to $1.6328 a gallon, and diesel futures gained 0.3%, to $1.6006 a gallon.

--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 10:53 ET (14:53 GMT)