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

By Timothy Puko Features Dow Jones Newswires

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.

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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.

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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)