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Oil boosted by signs US crude glut is shrinking

May 11,2017 10:19

Oil prices shot up more than 3% on Wednesday after data from the Energy Information Administration showed U.S. crude stockpiles dropped 5.2 million barrels in the week ended May 5, far exceeding market expectations. The reading marks the biggest ...and more »


Crude futures pushed higher Thursday as investors are interpreting the latest hefty decline in U.S. crude inventories to be a harbinger of future demand.
Light, sweet crude futures for delivery in June CLM7, +1.61%  climbed 64 cents, or 1.4%, to $47.97 a barrel on the New York Mercantile Exchange. May Brent crude LCON7, +1.55%  on London’s ICE Futures exchange picked up 60 cents, or 1.2%, to $50.82 a barrel.
Oil prices shot up more than 3% on Wednesday after data from the Energy Information Administration showed U.S. crude stockpiles dropped 5.2 million barrels in the week ended May 5, far exceeding market expectations. The reading marks the biggest weekly drawdown since December. The surprise decrease in gasoline and distillate inventories also helped mitigate worries that U.S. commuters weren’t soaking up enough gasoline to offset supply.
Gasoline demand rose to the highest since late March to over 9.2 million barrels a day, but still down 2.4% from the same period last year, according to the data.
“The data suggests that U.S. oil consumption remains robust,” said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, noting that overall inventories in terms of days of supply are closest to the six-year historic average this year.
Nonetheless, the fact that the bounce in prices had already lost steam early Thursday could show that the market was overwhelmingly bearish, say some analysts.
“The overhang is still very big and probably will be harder to decrease because of the resumed production from Libya and Nigeria,” said Gao Jian, an energy analyst at SCI International. Libya’s most recent production reportedly climbed as high as 800,000 barrels a day, the highest since 2014, while Nigeria is set to crank up production after reaching an agreement with local insurgents.
While the Organization of the Petroleum Exporting Countries and Russia have delivered on their pledges to cut their combined production by 1.8 million barrels a day, investors believe more needs to be done in order to bring the market back to balance.
“Oil prices above $40 is a profitable level for most U.S. shale producers to keep pumping. This means OPEC must do more than just rolling over the production cut deals in order to maintain this price floor,” said Gao.
Bank of America Merrill Lynch on Thursday cut its forecast for Brent crude prices. It now expects the commodity to average $54 a barrel in 2017, and $56 a barrel in 2018. It previously expected prices of $61 in 2017 and $65 for 2018.
“[W]e bring down our forecasts to reflect the crude reality: stocks are still too high and U.S. supply is set to recover faster than we anticipated,” said BofA.
Nymex reformulated gasoline blendstock for June RBM7, +1.68%  gained 1.4% to $1.561 a gallon. ICE gasoil for May moved up 1.2% to $449.50 a metric ton.
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