Oil prices turned lower Friday morning, as concerns about rising U.S. output and faltering fuel demand outweighed optimism about shrinking oil supplies.
U.S. crude futures recently fell 27 cents, or 0.57% to $46.82 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 19 cents, or 0.37%, to $50.84 a barrel on ICE Futures Europe.
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Oil prices have struggled to gain traction for a sustained move higher in recent weeks as investors have weighed bullish and bearish elements in recent data.
"I think we're stuck in a range here -- there's no fundamental reason we're going to see a substantial move higher," said Tariq Zahir, managing member of Tyche Capital Advisers.
Prices rose Thursday in part due to a fire at Royal Dutch Shell PLC's Deer Park, Texas, refinery. Analysts said repairs could take a week or more, reducing fuel output. The news sent prices of refined products upward, which in turn pulled crude prices higher, analysts said.
But some traders and investors see gasoline demand faltering: gasoline inventories have grown for two weeks, according to data from the U.S. Energy Information Administration, even at the time of year when drivers typically take to the roads.
"This suggests that the U.S. summer driving season is coming to a premature ending," analysts at oil brokerage PVM Associates wrote in a client note Friday. "Upside growth potential is therefore clearly in short supply and rumors that U.S. gasoline demand has reached an inflection point are once again rife.
Gasoline futures traded down 0.46 cent, or 0.29%, at $1.5823 a gallon. Diesel futures were near unchanged, up 0.06% at $1.5829 a gallon.
Still, others said oil investors have become overly bearish, ignoring signals that the oversupply of oil that has weighed on the market is rapidly shrinking. In the U.S., some 69 million barrels of oil have been withdrawn from storage since March, according to the most recent EIA data.
"Prices should be $10 higher given where the fundamentals are," said Amrita Sen, chief oil analyst at Energy Aspects, an energy-market research consultancy.
But Ms. Sen said prices were being held back by investor concern over still-rising U.S. production. She said the market was overly focused on the EIA's concurrent announcement that U.S. output had increased by 79,000 barrels a day, to 9.502 million barrels a day, during the week ended Aug. 11.
"The market is so obsessed with supply. If U.S. output is going up and stocks are drawing that is an extremely bullish development," Ms. Sen added, noting rising demand.
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Oil prices vaulted higher Friday after reports of a refinery outage kicked off a rally that continued throughout the afternoon as the dollar weakened and data showed a decline in the number of rigs drilling for oil in the U.S.
U.S. crude futures rose $1.42, or 3.02%, to $48.51 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.69, or 3.31%, to $52.72 a barrel on ICE Futures Europe -- its biggest daily increase since Dec. 1.
The two benchmarks diverged this week. U.S. crude futures fell for a third week in a row, following data showing rising output, while the global benchmark ended the week up 1.19%.
Prices had been languishing Friday morning, but moved sharply higher after Reuters reported that the hydrocracking unit at Exxon Mobil's Baytown, Texas, refinery shut down, citing sources familiar with the plant's operations. The 560,500 barrel-a-day plant is the second-largest refinery in the U.S., according to figures from the U.S. Energy Information Administration.
An Exxon spokeswoman declined to discuss the unit's operations and said an event that caused emissions at the plant earlier this week has ended with minimal impact to production.
Problems that disrupt fuel-making activity at refineries often lead higher gasoline and diesel prices higher. As that happened Friday, the difference between fuel prices and oil, known as the "crack spread," widened. That triggered a wave of crude buying, pulling prices higher, traders and brokers said.
Gasoline futures settled up 3.71 cents or 2.34%, at $1.6240 a gallon. Diesel futures rose 3.84 cents, or 2.43%, to $1.6204 a gallon.
The market's reaction Friday followed a similar pattern from Thursday when oil prices flipped from losses to gains after a fire at Royal Dutch Shell PLC's Deer Park, Texas, crude unit.
The rally gained steam Friday as prices broke through key technical levels that encouraged more buying.
"Once you got above yesterday's highs, the algos kicked in and started pushing it higher," said Michael Hiley, a trader at LPS Futures LLC, referring to computer-algorithm based trading systems, which have become more influential in the oil market this year.
Light trading volumes going into the weekend likely also contributed, analysts and brokers said.
"The bears are being run over by some of the near-term bulls," said Donald Morton, senior vice president at Herbert J. Sims, who oversees its energy trading desk.
The falling dollar also boosted oil prices. A weaker dollar makes dollar-traded oil less expensive for foreign buyers. Oil futures often rise when that happens.
And oil-field services firm Baker Hughes Inc. reported that the number of rigs drilling for oil in the U.S. fell by five in the latest week, the latest sign that drillers are responding to lower oil prices by pulling back.
Figures earlier this week showing that U.S. oil output rose by 79,000 barrels a day during the week ended Aug. 11 prompted renewed worries that higher output from the U.S., along with Nigeria and Libya, is undercutting efforts by the Organization of the Petroleum Exporting Countries and others to work off a supply glut.
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(END) Dow Jones Newswires
August 18, 2017 16:32 ET (20:32 GMT)
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