Oil prices flipped to gains after U.S. inventory data showed that oil stockpiles shrank and gasoline demand climbed to a record last week.
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The U.S. Energy Information reported that the amount of crude in storage fell by 1.5 million barrels last week.
U.S. crude futures initially fell after the data was released, as the decline in oil inventory was less than half of the 3.1 million barrel drop that analysts and traders surveyed by The Wall Street Journal had predicted.
But prices recently rose 27 cents, or 0.55%, to $49.43 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 40 cents, or 0.77%, to $51.18 a barrel on ICE Futures Europe.
Market participants pay close attention to the weekly U.S. inventory data, looking for signs that a glut that has weighed on the market is shrinking, after the Organization of the Petroleum Exporting Countries and external allies such as Russia agreed to cut production last year.
"The fact of the matter is that inventories did continue to decline," said Andy Lipow, president of Lipow Oil Associates. "Refiners have kicked up their utilization again and continue to turn the crude oil into products in response to very good demand," he said.
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Gasoline stockpiles fell 2.5 million barrels last week, dwarfing the 500,000 barrel draw analysts had forecast as demand rose to a record of 9.84 million barrels a day, according to EIA data.
Still, some said oil prices are likely to run into an upper bound. U.S. oil prices rallied above $50 a barrel on Monday -- the first time they topped that level in two months. But the rally came to an abrupt halt Tuesday.
"I think we're basically range bound," said Tariq Zahir, managing member of Tyche Capital Advisors. "You've got a lot of bearish factors."
One of those factors is U.S. oil production, which rose last week by 20,000 barrels a day, according to the EIA. Even though oil futures didn't spend much time above $50, the rising prices likely encouraged a new wave of hedging by companies that use futures contracts to lock in prices for their output, Mr. Zahir said. That could have long-term implications for the market if it allows U.S. producers to keep pumping profitably.
And while gasoline demand has been relatively strong, many are looking ahead to September, which brings the end of summer driving season. When demand slows, the high levels of fuel that refiners have churned out could become a weight on the market, said Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy trading desk.
Gasoline futures fell 0.6 cent, or 0.36%, to $1.6553 a gallon. Diesel futures rose 0.94 cent, or 0.57%, to $1.6507 a gallon.
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(END) Dow Jones Newswires
August 02, 2017 12:18 ET (16:18 GMT)