Oil prices rebounded Thursday after another drop in U.S. crude stocks, which may signal that production cuts are affecting hefty global inventories.
U.S. storage levels fell by nearly three times as much as expected in the week ended Friday, according to data released by the U.S. Energy Information Administration. Crude inventories shrank by 6.4 million barrels and gasoline by 2.9 million. Analysts and traders surveyed by The Wall Street Journal had forecast just a 2.5-million-barrel drop for crude and a 1.1-million-barrel drop for gasoline.
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Prices rose immediately after the data release. Light, sweet crude for July delivery recently gained 68 cents, or 1.4%, to $49.00 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 53 cents, or 1%, to $51.29 a barrel on ICE Futures Europe. They had both traded at or near an unchanged level from yesterday before EIA's data release at 10:30 a.m. EDT.
The gains have at least temporarily stopped the latest of several losing stretches for oil since early March. Prices had surged past $50 a barrel after the Organization of the Petroleum Exporting Countries and other major exporters announced output cuts to start this year. But the market has been prone to retreats in the months since, largely because U.S. stockpiles haven't moved far from historically high levels, despite those cuts.
Last week's drop was the eighth in a row and the largest drop in that span, according to EIA data. Increasing refinery consumption -- common at this time of year -- is likely playing a role, but the data suggests cuts from the world's exporters are as well, a trader and analyst said.
Imports fell for the second week in a row, now down to 8 million barrels a day, back toward the lowest levels of the year, EIA said. They are down more than 11% from the 2 1/2 -year highs they hit early this year right after OPEC and other exporters sent their own production and exports soaring ahead of their deal to cut back.
"That (OPEC) influence is probably beginning to happen," said Bart Melek, head of commodity strategy at TD Securities in Toronto. "The message is these inventories may well drain a lot quicker than people thought."
Refinery utilization also shot higher though analysts expected it to stay the same. At 95% of capacity -- up from 93.5 the week before -- refineries are now running and consuming crude at some of the highest rates of the last decade.
"That's a big thirsty glass and they're drinking a lot of crude oil," said Donald Morton, senior vice president at Herbert J. Sims & Co. "It's a baby step."
Gasoline futures recently gained 1.4% to $1.6189 a gallon. Diesel futures gained 0.2% to $1.5213 a gallon.
The issue is the market needs many more weeks like these to get high inventories back to normal, Mr. Morton added. While EIA's report was broadly positive, it is too soon to get "crazy bullish," Mr. Morton said.
Wednesday oil prices tumbled more than 3% with investors seeing production cuts offset by rises in Libya and Nigeria, OPEC members who are exempt from the reductions. The U.S. is also expected to add over 0.4 million barrels a day of production in 2017, according to the EIA.
Even though OPEC and major non-cartel heavyweights such as Russia last week extended current production cuts, it remains to be seen if such caps can effectively chip away the glut of oil that has haunted prices for more than two years.
Libya has recently increased its output to three-year highs. Growth from a smaller producer injecting "such a significant drag to oil prices suggests that market watchers remain extremely wary over any potential supply-glut widening," said Barnabas Gan, an OCBC economist.
--Sarah McFarlane and Jenny W. Hsu contributed to this article.
Write to Timothy Puko at email@example.com
(END) Dow Jones Newswires
June 01, 2017 13:01 ET (17:01 GMT)