U.S. Crude Prices Climb After Data Shows Drop in Supplies

FeaturesDow Jones Newswires

Oil prices steadied below a three-year high Wednesday, with expectations of a build in U.S. crude stocks weighing on the market.

Brent crude, the global oil benchmark, fell 0.2% to $69.83 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were up 0.2% at $64.59 a barrel.

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The American Petroleum Institute reported Tuesday a 4.8 million barrel rise in U.S. crude stocks for the week ended Jan. 19. Official data from the Energy Information Administration is due to be published Wednesday.

Commerzbank said that oil processing by U.S. refineries is likely to decrease further in the coming weeks.

"This points to rising U.S. crude oil stocks and is likely to prompt speculative financial investors to reduce their record-high net long positions," pressuring oil prices lower, the bank said in a daily note.

Even so, oil prices remain close to their highest levels since late 2014, buoyed by a spate of outages, rising geopolitical risks and coordinated production cuts.

Comments from Saudi Arabia's energy minister on Sunday suggesting the Organization of the Petroleum Exporting Countries and other major producers including Russia should cooperate beyond their agreed cuts--due to expire at the end of 2018--were supportive of prices.

"I doubt that they will want to turn the taps back on in January [2019] and flood the market," said Tom Pugh, commodities economist at Capital Economics, adding that he expected a "managed withdrawal."

The rally in WTI prices to around $65 a barrel this month from around $45 in June has incentivized more U.S. production, with the EIA estimating output will rise to 10.27 million barrels a day in 2018, from 9.3 million barrels last year.

This rising supply, along with higher prices, risks OPEC members cheating on their deal, analysts said.

"If rapid U.S. supply growth does end up becoming apparent toward the middle of 2018, pressure to maintain cuts will increase as the expiry of the current accord draws near," said consultancy JBC Energy.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.3% to $1.90 a gallon. ICE gasoil changed hands at $618.25 a metric ton, up 50 cents from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

U.S. crude prices climbed to fresh three-year highs Wednesday after government data showed that oil supplies in the U.S. fell last week, surprising market participants who had been bracing for an increase.

The U.S. Energy Information Administration reported that crude stockpiles dropped by 1.1 million barrels last week -- the 10th consecutive week of declines. The American Petroleum Institute had reported Tuesday a 4.8 million barrel rise in U.S. crude stocks, which weighed on prices in earlier trading, so the decrease helped jolt prices higher.

"It's been a bullish inventory trend. Until that starts to reverse, I think prices will remain somewhat supported," said Kyle Cooper, an analyst at ION Energy Group.

U.S. crude futures rose $1.14, or 1.77%, to $65.61 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 57 cents, or 0.81%, to $70.53 a barrel.

Oil prices have risen to their highest levels since late 2014, buoyed by a spate of outages, rising geopolitical risks and coordinated production cuts. A global economic upswing is also boosting demand for oil and fuel.

In the U.S., a glut that weighed on the markets for years is being drained. The main storage hub in Cushing, Okla., was once filling up to the brim. Now the tanks there are half full, with the amount of crude in storage there down 44% from nine months ago, according to the EIA data. Analysts said that is likely to continue as new pipelines pull more oil from Cushing and lower long term oil futures prices make it less advantageous to sock oil away in storage.

"The expectation is to see ever-lower inventories in the coming weeks," said Andy Lipow, president of Lipow Oil Associates.

Still, there are some risks on the horizon. Fuel stockpiles are building up: gasoline inventories rose 3.1 million barrels and diesel inventories rose by 600,000 barrels last week, the EIA said. Analysts surveyed by The Wall Street Journal were expecting a 2.5 million barrel increase in gasoline supplies and anticipated that diesel supplies would fall by 2 million barrels.

"My biggest concern is refiners turning this crude inventory into a product inventory," Mr. Lipow said.

Gasoline futures edged up 0.77 cents, or 0.4%, to $1.9164 a barrel. Diesel futures rose 2 cents, or 0.96%, to $2.1061 a gallon.

And U.S. producers have pounced on the higher crude prices. Output rose by 128,000 barrels a day last week to 9.878 million barrels a day -- a record. This rising supply, along with higher prices, risks OPEC members cheating on their deal, analysts said.

"If rapid U.S. supply growth does end up becoming apparent toward the middle of 2018, pressure to maintain cuts will increase as the expiry of the current accord draws near," said consultancy JBC Energy.

But for now, OPEC appears to be staying the course. Comments from Saudi Arabia's energy minister on Sunday suggesting the Organization of the Petroleum Exporting Countries and other major producers including Russia should cooperate beyond their agreed cuts -- due to expire at the end of 2018 -- were supportive of prices.

"I doubt that they will want to turn the taps back on in January [2019] and flood the market," said Tom Pugh, commodities economist at Capital Economics, adding that he expected a "managed withdrawal."

Dan Molinski contributed to this article.

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

(END) Dow Jones Newswires

January 24, 2018 15:42 ET (20:42 GMT)

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