Oil Climbs as U.S. Stockpiles Shrink -- Update

Oil prices made small gains in topsy-turvy trading tied to falling U.S. inventories.

Crude storage levels fell by 7.6 million barrels in the week ended Friday, the U.S. Energy Information Administration said Wednesday morning. That is more than double the draw estimated by analysts surveyed by The Wall Street Journal and nearly confirmed a drawdown of 8.1 million barrels that the American Petroleum Institute estimated Tuesday evening.

The market had surged after that report Tuesday, sending prices higher into the morning. It pared gains after the EIA report, likely from skeptics still concerned about oversupply and from automated-trading systems that are following a pattern from recent months of selling off after similar data or reports that might indicate an end of oversupply, brokers said.

Light, sweet crude for August delivery settled up 45 cents, or 1%, at $45.49 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, gained 22 cents, or 0.5%, to $47.74 a barrel on ICE Futures Europe. Both hit a third-straight session of gains, but those gains had been larger -- beyond 2% -- before the EIA's data release at 10:30 a.m. EDT.

The EIA's weekly storage update for the U.S., the world's largest consumer, is considered as a leading indicator of the balance between supply and demand. It has become especially important in recent months as market watchers await signs that output cuts from the world's big exporters are affecting a longstanding glut.

Commercial crude stockpiles fell to 495 million barrels, EIA said. It is the 11th decline in the last 13 weeks.

Gasoline stockpiles also fell by 1.6 million barrels, compared with analysts' expectations of a 300,000-barrel addition. That helped bring total commercial stocks of crude and all oil-based products down 3.9 million barrels to 1.3 billion barrels. That is down 1.2% from a year ago.

"Those were bullish stats," said Scott Shelton, broker at ICAP PLC. But "the market loves rallying for no reason, and then selling off on good data."

That has been a pattern for several months, with many traders still skeptical of a changing market because U.S. production is rising and stockpiles aren't falling as quickly as some expected. Commercial crude levels, at 495 million barrels, are still 0.9% higher than they were a year ago, according to EIA data. U.S. production rose 0.6% in the past week to 9.4 million barrels a day. It was at just 8.6 million a year ago.

"On a global scale, we're not eating away at the surplus," said J. Alexander Blackman, an executive at Standard Delta LLC, a trading company in Houston.

U.S. production is expected to increase in 2018, albeit at a lower rate than previously estimated. Tuesday's revised short-term energy outlook report from the EIA showed a lower production forecast for 2018 to 9.9 million barrels a day, slightly down from around 10 million before. That would still set the record for annual production, exceeding 9.6 million barrels a day in 1970. It would also be higher than the estimated production for 2017, at 9.3 million barrels a day.

"There's been speculation of how long U.S. production would continue to be able to rise considering the selloff we've seen in recent months. That was the first official sign that there could be some downgrades coming," said Ole Hansen, head of commodity strategy at Saxo Bank, on the new report.

Gasoline futures gained 0.25 cent, or 0.2%, to $1.5208 a gallon, the 10th gain in 12 sessions. Diesel futures lost 0.26 cent, or 0.2%, to $1.4737 a gallon.

--Justin Yang contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

July 12, 2017 15:42 ET (19:42 GMT)