Oil Prices Rise After Data Show Drop in U.S. Crude Supplies

By Christopher Alessi Features Dow Jones Newswires

Oil prices traded higher Wednesday, supported by ongoing political tensions in the Middle East.

Continue Reading Below

Brent crude, the global benchmark, was up 0.76%, at $58.32 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.31%, at $52.04 a barrel.

"There are no prizes for guessing the current buzzword in the energy complex. Geopolitics and specifically geopolitical tensions have returned to the fore after being fanned by unrest in Iraq and rising hostility between the U.S. and Iran," Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd, wrote in a note Wednesday.

Escalating tensions between Iraq's central government and the semi-autonomous Kurdish region have boosted crude prices in recent days, amid concerns the conflict could crimp exports from the area. Kurdistan, which voted almost unanimously to become an independent state in a controversial referendum late last month, exports nearly 600,000 barrels of oil a day.

Kurdish forces on Tuesday ceded control of large swaths of northern Iraq to Iraqi government forces, who earlier in the week had taken control of the oil-rich Kirkuk province. But Iraq's oil minister, Jabbar al-Luaibi, told The Wall Street Journal on Tuesday that production from oil fields in Kirkuk was running normally.

The other geopolitical risk helping crude prices is the possibility the U.S. will impose fresh sanctions on Iran, limiting its oil export capacity. President Donald Trump last week refused to certify Iran's compliance with a 2015 international agreement to curb the Islamic Republic's nuclear program in exchange for economic sanctions relief.

Continue Reading Below

However, Iran's deputy oil minister, Amir Zamaninia, insisted Tuesday at an oil industry conference in London that Mr. Trump's decision would have "little or no effect on our future plans on the oil industry."

Olivier Jakob, an oil analyst at consultancy PetroMatrix, said he didn't expect more upside from the existing international tensions. "Geopolitical risk is somehow priced in," he said.

Mr. Jakob said Brent was unlikely to push above $60 a barrel because that level would encourage increased hedging from U.S. shale producers and less compliance among members of the Organization of the Petroleum Exporting Countries with their deal to curb output.

OPEC and 10 producers outside the cartel, including Russia, first agreed late last year to cap their production at around 1.8 million barrels a day lower than peak October 2016 levels, with the aim of alleviating global oversupply and boosting prices. The deal was extended in May through March 2018 and participants have indicated in recent weeks they could potentially prolong the agreement through the end of next year.

Investors and analysts will be looking ahead to weekly inventory data from the U.S. Energy Information Administration, expected Wednesday afternoon.

Initial estimates Tuesday from the American Petroleum Institute, an industry group, showed a 7.1 million barrel decrease in crude supplies last week.

Among refined products, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was up 0.82%, at $1.63 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $539.75 a metric ton, up 0.47% from the previous settlement.

--Benoit Faucon contributed to this article

Write to Christopher Alessi at christopher.alessi@wsj.com

Oil prices rose for a fourth straight session to hit three-week highs Wednesday after government data showed a larger-than-expected draw from U.S. crude stockpiles.

U.S. crude futures settled up 16 cents, or 0.31%, at $52.04 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 27 cents, or 0.47%, to $58.15 a barrel on ICE Futures Europe.

Still, oil prices pulled back from earlier gains and at times traded in negative territory as investors tried to gauge the impact of Hurricane Nate on last week's data, as well as figures indicating that fuel demand declined last week.

The U.S. Energy Information Administration reported Wednesday that crude inventories fell by 5.7 million barrels last week, more than the 3.2 million barrels that analysts were expecting, according to a survey by The Wall Street Journal.

But some of that was driven by a sharp but temporary decrease in oil output as offshore producers shut in around Hurricane Nate, which hit the Gulf Coast earlier this month. U.S. production fell nearly 1.1 million barrels a day last week, according to the EIA.

"Normally we would expect the market to have a more positive tone to it, but people are expecting we'll jump back up," said Gene McGillian, research manager at Tradition Energy. "This report is basically being shrugged off because of the effects of Nate."

Much of the draw from oil stockpiles was driven by another big increase in exports of U.S. crude, which rose to 1.798 million barrels a day for their second highest level on record. Exports have surged in recent weeks as the price difference between U.S. and global crude benchmarks has widened, making it more lucrative to sell U.S. oil overseas.

But data showing that gasoline inventories increased by 900,000 barrels -- even though refinery utilization fell sharply from 89.2% to 84.5% -- gave some investors pause. That could be a sign that demand is due to drop off following the end of summer driving season, analysts said. Analysts at Capital Economics said total petroleum products consumption fell to its lowest level since April, and said a drop in demand was largely to blame for the rise in gasoline stockpiles.

Andy Lipow, president of Lipow Oil Associates, said the drop in refinery activity was largely due to the storm, which prompted some plants to shut or slow down as a precautionary measure. He expects that rising U.S. exports, additional refinery demand, and growing tensions in the Middle East could push the global benchmark to $60 a barrel by January.

Oil prices have been buoyed in recent days by fears of a supply interruption from the oil-rich region of Kirkuk because of clashes there between Iraq's central government and the semiautonomous Kurdish region.

But Iraq's oil minister told The Wall Street Journal Tuesday that production from the area was running normally, and some analysts said that worries have eased for the moment.

"I think at least some of the premium that was put in, we're just not showing any sustained follow-through from there," said Tariq Zahir, managing member of Tyche Capital Advisors. "We're in this range, it's not really going anywhere."

Gasoline futures rose 1.28 cents, or 0.79%, to $1.6429 a gallon. Diesel futures rose 0.7 cent, or 0.39%, to $1.8028 a gallon.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

October 18, 2017 16:01 ET (20:01 GMT)