Oil Advances After U.S. Crude Supplies Fall a Record Ninth Week

  • U.S. crude stockpiles down 2.34 million barrels last week: EIA
  • Gasoline supply rose as refinery activity climbed to 2016 high

Is There a Resurgence in Oil Production Services?

Oil rose after a government report showed that U.S. crude stockpiles fell a ninth week, marking the longest stretch of declines on record.

Crude inventories fell 2.34 million barrels last week, Energy Information Administration data show. Supplies remain at the highest seasonal level in at least a decade. Gasoline stockpiles rose as refineries bolstered operating rates to the highest level this year. Prior to the report, prices fell to a two-month low as the Bloomberg Dollar Spot Index climbed to a seven-week high.

"We are continuing to see crude being made into products," said Chip Hodge, who oversees a $12 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "We have to slog through a great deal of excess supply before the market returns to balance."

Oil has dropped about 13 percent since touching $51.67 a barrel on June 9 as Canadian supply returned after wildfires and the Brexit vote raised concerns about European economic strength. Falling U.S. crude production and inventories have offered support for the market, which saw prices hit a 12-year low in February.

West Texas Intermediate for August delivery, which expired Wednesday, rose 29 cents to close at $44.94 a barrel on the New York Mercantile Exchange. Prices earlier touched $43.69, the lowest intraday since May 10. The more-active September contract climbed 30 cents to $45.75.

Record Stretch

Brent for September settlement climbed 51 cents, or 1.1 percent, to $47.17 on ICE Futures Europe. The global benchmark closed at a $1.42 premium to September WTI.

The EIA report showed U.S. crude supplies dropped a ninth week, which is the longest stretch of declines in the data series that the agency began gathering in 1982. Inventories dropped to 519.5 million barrels, the lowest since the week ended Feb. 26, EIA data show. Supplies climbed to an 87-year high of 543.4 million barrels in the last week of April.

"Crude is consolidating here and then should start moving higher," said Matt Sallee, who helps manage $14.1 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. "The crude decline reaffirms our view. The market’s tightening."

Humming Refineries

Refineries bolstered operating rates by 0.9 percentage points to 93.2 percent of capacity, the highest since November. Refineries processed 17.1 million barrels of oil, the most since August. U.S. refiners typically boost utilization in July as they maximize gasoline output for the summer peak driving season.

Gasoline supplies rose 911,000 barrels to 241 million last week, marking the highest level since April, the report showed. U.S. consumption of the fuel averaged 9.73 million barrels a day in the four weeks ended July 15, down 0.1 percent from July 8 but still the highest seasonal level in at least a decade.

"The gasoline number is bearish," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "This is a time of year when gasoline supplies are normally being intentionally run down because refiners don’t want to end the summer driving season with full tanks."

Gasoline futures for August delivery slipped 0.9 percent to $1.3637 a gallon, the lowest close since July 7.

Lower Prices

The average price of regular gasoline at the pump nationwide fell 0.7 cent to $2.194 a gallon on Tuesday, the lowest since April 27 and down 20 percent from a year earlier, according to data from Heathrow, Florida-based AAA, a national federation of motor clubs.

"Growing gasoline inventories are good for consumers," Hodge said. "The excess supply has kept a lid on prices."

The Bloomberg Dollar Spot Index, which tracks the currency against major peers, increased as much as 0.25 percent, while the Bloomberg Commodity Index decreased as much as 1.1 percent. A stronger greenback reduces the appeal of dollar-denominated raw materials to investors.

Prices should rebound to about $60 a barrel next year and accelerate the return of drilling rigs, Pioneer Natural Resources Chief Executive Officer Scott Sheffield said at CSIS event in Washington Tuesday.

The number of active oil rigs in the U.S. has increased in six of the last seven weeks, according to Baker Hughes Inc. The count is still down by more than 1,000 from the beginning of last year.

"There’s nothing in today’s report that changes our overall view of the global oil market," said Michael Wittner, the New York-based head of oil-market research at Societe Generale SA. "The market is broadly balanced but people are getting impatient because of excess supply."

Oil-market news:

  • Goldman Sachs Group Inc. sees Russia oil output exceeding the former Soviet record set almost 30 years ago by the end of 2018, according to a research note after meetings with major oil companies and government officials.
  • Saudi Arabian Oil Co., known as Saudi Aramco, will keep investing in oil projects for the long term, and its sales to buyers in East Asia are rising, Amin Nasser told reporters Wednesday.
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