U.S. Oil Prices Climb on Stockpile Drain

U.S. oil prices rebounded slightly Thursday after another drop in U.S. crude stocks, though most of the gains got erased in a late-day selloff.

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.

Imports also shrank again and refineries ramped up to near historic highs. It was a sign for some that output cuts from global exporters and rising demand from summer driving season are easing a longstanding glut.

It "is the strongest single week's data for several years," Paul Horsnell, head of commodity research at Standard Chartered PLC, wrote in a client note. "Demand is booming and inventory surpluses are dissipating at a rapid rate."

Prices rose immediately after the data release. Light, sweet crude for July settled up 4 cents, or 0.1%, at $48.36 a barrel on the New York Mercantile Exchange. Brent lost 13 cents, or 0.3%, to $50.63 a barrel on ICE Futures Europe.

Prices had been higher, with U.S. oil cresting above $49 a barrel before nearly all those gains got erased in about a half-hour of trading before settlement. Many have been betting that output cuts from around the world are getting canceled out by increases in the U.S. and elsewhere, a trend that has many traders selling on rallies and was largely responsible for the retreat late Thursday, a broker and analyst said.

"Other than the (inventory) data, the market has little reason to be cheerful" at present, said Gao Jian, an energy analyst at Shandong-based SCI International.

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 demand also hit 9.8 million barrels a day, its highest ever in data stretching back to 1991. Gasoline futures gained 0.49 cent, or 0.3%, to $1.6014 a gallon.

While gasoline numbers were bullish, distillates in storage, including heating oil and diesel, rose by 394,000 barrels, when analysts expected them to fall by 300,000. Diesel futures lost 1.62 cents, or 1.1%, to $1.5017 a gallon, its fifth fall in six sessions.

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 and Dan Molinski contributed to this article.

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

(END) Dow Jones Newswires

June 01, 2017 15:41 ET (19:41 GMT)