Oil Closes Near $38 After Dollar Loss Eases, U.S. Supply Rises

  • Prices rose as much as 4.1% earlier on U.S. refinery pickup
  • U.S. crude supplies climbed to highest level since 1930: EIA

Oil Rises After Four-Day Loss

Oil closed near $38 a barrel in New York as the dollar’s loss eased, reducing the appeal of crude as a store of value.

Futures retreated from the day’s highs along with the Standard & Poor’s 500 Index. A stronger dollar curbs investor demand for commodities. Prices surged as much as 4.1 percent after a government report showed U.S. refineries processed the most crude since January. American crude supplies rose, keeping stockpiles at the highest level since 1930.

"Inventories are at historic highs, which is hard to ignore," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "The oil market is moving in tandem with the S&P 500, which is the norm, and the dollar is rebounding."

Oil tumbled to a 12-year low this year before rebounding on speculation the global surplus will ease as U.S. output declines. Iran will attend talks with fellow members of the Organization of Petroleum Exporting Countries and other producers in Qatar next month, without joining their proposal to freeze output, according to a person familiar with the nation’s policy.

West Texas Intermediate for May delivery increased 4 cents to settle at $38.32 a barrel on the New York Mercantile Exchange. Futures advanced as much as $1.57 to $39.85 earlier. Prices are up 14 percent this month.

Rising Stockpiles

Brent for May settlement rose 12 cents to $39.26 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a 94-cent premium to WTI.

Crude inventories rose 2.3 million barrels to 534.8 million last week, according to the Energy Information Administration. Supplies at Cushing, the delivery point for WTI traded in New York, slipped 272,000 barrel to 66 million.

U.S. refineries operated at 90.4 percent of capacity in the week ended March 25, up 2 percentage points from the week before, according to the EIA. American refiners typically increase utilization rates in April as they prepare for the summer peak driving season.

"The U.S. refinery sector still has a huge advantage against the rest of the globe, so we should continue to see them increase utilization," said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. "We should start to see a slowdown in crude builds over the next few weeks as the draws in the products reverse."

Gasoline inventories dropped 2.51 million barrels, the sixth straight decline. Stockpiles of distillate fuel, a category that includes diesel and heating oil, fell 1.08 million barrels.

"The report was mildly supportive," said Mike Wittner, head of oil markets at Societe Generale SA in New York. "We’re starting to see crude runs heat up as refineries come out of seasonal maintenance. Product demand is strong, led by gasoline."

Demand for gasoline rose 0.3 percent to 9.4 million barrels a day through March 25, averaged over four weeks, the highest level since August. Consumption was up 5 percent from the same period last year.

Crude production fell by 16,000 barrels a day to 9.02 million, the lowest since November 2014. Rigs targeting oil in the nation’s fields slipped by 15 to 372 last week, Baker Hughes Inc. data show. 

The Bloomberg Dollar Spot Index was 0.4 percent lower at 1,182.91 as of 3:30 p.m. in New York, after touching 1,180.19, its lowest since June.

Overshooting Higher

"Our base case has oil around $40 for a couple of months, and then starting to rise in the second half of the year," said Matt Sallee, who helps manage $13.5 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. "The conditions are being set for the market to overshoot in the other direction. With the rig count down 75 percent, it’s going to take a little longer to respond when prices start to rise."

Pierre Andurand, a hedge fund manager who predicted the oil collapse, said crude is starting a “multi-year bull run” because low prices have curbed supply. Futures will rebound to $60 to $70 this year and $80 in 2017, the chief investment officer of London-based hedge fund Andurand Capital Management LLP said in a newsletter to investors. A spokesman for the money manager declined to comment.

Oil production news:

  • Kuwait agreed with Saudi Arabia to resume production at an offshore oil field shared by the two OPEC members, the official Kuwaiti news agency reported, without giving a specific time for the restart.
  • U.S. crude output is forecast to drop to as low as 8.5 million barrels a day by the end of the year, according to a report from Citigroup Inc.
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