U.S. oil futures climbed near their highest level of the year on speculation that supply growth is beginning to slow.
Genscape Inc. was said to report a drop in inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate contracts, in the second half of last week, according to Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
Concern that a record surplus in stockpiles would strain the nation’s storage capacity had been holding back oil’s recovery from a six-year low. Prices capped their biggest weekly advance in more than four years in New York on growing expectations that a decline in drilling will curb production.
“The Genscape number is really what has turned us around,” said Flynn. “It’s breaking into the myth that Cushing was going to overflow with supply. By getting a draw down this is definitely giving the market a big boost.”
WTI for May delivery, which expires Tuesday, rose 64 cents to end at $56.38 a barrel on the New York Mercantile Exchange. Futures touched $57.42 last week, the highest level since Dec. 23.
Brent for June settlement closed unchanged at $63.45 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $5.57 to WTI for the same month.
Inventories at Cushing climbed 1.29 million barrels to a record 61.5 million in the week ended April 10, according to the Energy Information Administration.
“There’s been a great deal of focus on these numbers in recent months,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund, said by phone. “There’s an idea that production levels may have peaked and these numbers are seen as evidence that’s the case.”
The U.S. oil rig count dropped 26 to 734 last week, the lowest level since 2010, according to Baker Hughes Inc.
“The market continues to adjust to the new reality that things are not as bad as people thought earlier this year,” said Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisor. “The supply-demand fundamentals are tighter than people had expected.”
Shale production from fields including the Permian and Eagle Ford in Texas and Bakken in North Dakota will decline by 57,000 barrels a day next month, the Energy Information Administration said on April 13. That’s the first time the agency projected a drop in reports going back to 2013.
The EIA forecast that total crude output will dip from June through September, before recovering. The International Energy Agency projected that U.S. production of 12.6 million barrels a day in the first half of 2015 will slide to 12.5 million by the fourth quarter. The IEA figure includes crude, condensate and natural gas liquids.
Speculators boosted their net-long position in WTI crude by 9 percent in the seven days ended April 14 to the highest since August, U.S. Commodity Futures Trading Commission data show. Shorts, or bets on falling prices, tumbled to the lowest since February.