Oil prices rose Wednesday after U.S. data showing a larger-than-anticipated drop in the amount of crude in storage bolstered confidence that the oil market is tightening.
The U.S. Energy Information Administration reported that U.S. oil stockpiles fell by 7.2 million barrels last week -- well above the 2.6 million barrel drop that analysts surveyed by The Wall Street Journal had predicted.
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Still, the decline fell short of the 10.2 million barrel draw that the American Petroleum Institute reported Tuesday, and oil's gains were slippery: U.S. crude futures rose as high as $48.87 before pulling back. U.S. crude for September delivery recently traded up 65 cents, or 1.36%, to $48.54 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 60 cents, or 1.2%, to $50.80 a barrel on ICE Futures Europe.
Oil prices are on track to settle at a two month high as investors are starting to come around to the idea that efforts by the Organization of the Petroleum Exporting Countries and other major exporters may actually be paying off.
"The market was in a wait and see mode -- waiting to see are the OPEC cuts really going to make a difference? Is $45 going to make an impact on U.S. crude production?" said Nick Koutsoftas, portfolio manager at Cohen & Steers.
And after months of false starts and crises of confidence that sent oil prices tumbling into bear market territory, investors are growing more comfortable that the answer to those questions is "yes."
More than 50 million barrels of oil been drained from U.S. storage tanks since the end of March, and commercial crude inventories are 7.1% below last year's levels. Fears that U.S. producers would swamp the glutted market with more oil are also starting to ease.
The EIA reported that U.S. oil production fell by 19,000 barrels a day last week, driven by a drop-off in Alaskan oil output.
"Is it possible we've maxed out? There is that possibility," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc.
Demand figures have also been encouraging, analysts and traders said. The EIA reported that gasoline inventories fell by 1 million barrels last week.
Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy-trading desk, said prices of different grades of oil around the world are moving closer together -- another sign of an increasingly tight market.
"Either the rebalancing is actually occurring, or the bets being made that it's going to occur," he said.
That is a shift from just a few weeks ago, when investors were questioning production cuts by OPEC and other major producers such as Russia were making a dent in a glut of oil that has weighed on the market for three years.
Saudi Arabia on Monday said not only will it reduce August exports by a million barrels a day versus year-earlier levels, but that the kingdom will also monitor export levels to gauge peers' compliance levels.
Still, many analysts and investors believe the oil-price recovery is still tentative.
"We're in a market where it takes four good data points to have a rally and only one to have it tank," said Dan Pickering, head of the asset management arm of Tudor, Pickering Holt & Co. "We're slowly convincing a skeptical market, but the data has to continue to come through."
Gasoline futures rose 0.78 cent, or 0.49%, to $1.6040 a gallon. Diesel futures rose 2.21 cents, or 1.41%, to $1.5906 a gallon.
--Jenny W. Hsu contributed to this article.
Write to Alison Sider at email@example.com
Corrections & Amplifications
This article was corrected at 3:42 p.m. ET to reflect that the EIA reported that U.S. oil production fell by 19,000 barrels a day last week, driven by a drop-off in Alaskan oil output. The original version of this article incorrectly stated in the eighth paragraph that U.S. production fell by 54,000 barrels a day.
The EIA reported that U.S. oil production fell by 19,000 barrels a day last week, driven by a drop-off in Alaskan oil output. "Oil Gains After Stockpiles Show Larger-Than-Expected Drop," published at 12:19 p.m. ET, incorrectly stated in the eighth paragraph that U.S. production fell by 54,000 barrels a day.
(END) Dow Jones Newswires
July 26, 2017 15:55 ET (19:55 GMT)