Oil prices rebounded from earlier losses on Wednesday after data showed a larger-than-expected falloff in U.S. crude inventories, a salve for investors after several days of declines founded on worries about the slow pace of global efforts to reduce a glut.
The U.S. Energy Department said crude stocks dropped 3.6 million barrels last week, more than double what was expected, juicing some buying in the market. [EIA/S]
U.S. crude futures have slipped in six of the last seven days, as investors have grown impatient with high inventories after last year’s landmark deal by the world’s major oil producers to cut output.
The U.S. government data counters Tuesday’s report from industry group the American Petroleum Institute that showed an unexpected build in inventories.
However, gasoline and distillate stockpiles grew, while U.S. production and imports increased, so the path for higher prices remains tentative, analysts said.
U.S. West Texas Intermediate (WTI) was up 37 cents at $49.93 per barrel, while Brent crude, the international benchmark, was up 11 cents to $52.21 a barrel by 11:31 a.m. EDT.
The gains in oil prices were offset by a drop in reformulated blendstock gasoline prices, which dropped by 1.3 percent to $1.5999 a gallon after gasoline inventories rose sharply.
Refining capacity utilization rose to 94.1 percent, highest since November 2015. That boosted gasoline inventories at 241 million barrels, or about where inventories were at this time in 2016, which sapped refining margins.
Analysts have expressed concern about weak gasoline demand, which could weigh on crude prices in coming weeks if consumption fails to rise. In January, sales of gasoline by refiners was down 6 percent from the year earlier, the latest EIA data available.
“Refiners are obviously cranking out large volumes of refined products now, and are facing a lackluster gasoline demand environment,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.
Brent and WTI earlier found support from Saudi Energy Minister Khalid al-Falih, who said he was interested in talks between the Organization of the Petroleum Exporting Countries and non-OPEC producers to stabilize prices.
OPEC and a handful of big producers, including Russia, pledged to cut output by 1.8 million barrels per day (bpd) in the first half of 2017. Gulf and some other producers have indicated cuts could be extended to the end of 2017; OPEC next meets in May to discuss extending cuts.
However, Russian officials have been less emphatic than OPEC members about maintaining cuts.
“The market remains heavy with doubts about OPEC’s ability to achieve a successful extension of the current deal with Russia adopting a lukewarm ‘wait and see’ approach,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The average value of the Brent crude forward curve <0#LCO:> has fallen by over $5 per barrel since the start of the year.
The slump in Brent is a result of record crude oil volumes in circulation on ships around the world. Thomson Reuters Eikon shipping data showed 50 million bpd were booked for shipment on tankers this month, up 10 percent since December.