Oil Pares Gains After API Reports Unexpected Supply Increase

  • Industry group’s report said to show crude, gasoline gain
  • EIA forecast to report U.S. supplies fell 1.75 million barrels

Oil pared gains after the American Petroleum Institute was said to report an unexpected U.S. crude inventory gain and gasoline stockpile increase.

Crude supplies rose 897,000 barrels last week according to an API report Tuesday, people familiar with the data said. That contrasts with the view from analysts surveyed by Bloomberg who said stockpiles probably fell 1.75 million barrels last week, before Energy Information Administration data Wednesday. Gasoline stockpiles increased 4.45 million barrels, the API was said to report, while analysts were looking for a 500,000-barrel advance.

Oil’s rally has deflated amid concern that rising U.S. output will offset efforts by the Organization of Petroleum Exporting Countries and its allies to trim a global glut. While OPEC members mull an extension to the six-month deal past June, American drillers targeting crude continue to add rigs to shale fields.

“Inventories are now moving to the forefront ahead of the stats,” Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, said by telephone.

West Texas Intermediate for June delivery increased 33 cents to close at $49.56 a barrel on the New York Mercantile Exchange. Futures touched $48.87, the lowest intraday level since March 29. Total volume traded was about 11 percent below the 100-day average. WTI traded at $49.32 as of 4:52 p.m., after the release of the API data.

Brent for June settlement rose 50 cents, or 1 percent, to $52.10 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.54 premium to WTI.

Path Trading’s Bob Iaccino discusses the outlook for oil.

(Source: Bloomberg)

Futures flirted with the 200-day moving average during trading and when it became clear they weren’t going to close below the technical marker at $48.91, prices climbed, Finlon said.

U.S. crude stockpiles have fallen for two straight weeks after rising to 535.5 million barrels at the end of March, the highest level in weekly data compiled by the EIA since 1982. Crude output rose to 9.25 million barrels a day in the week ended April 14, the highest since August 2015.

Long Way

“We’ve come down a long way and it’s time for a break,” Kyle Cooper, director of research with IAF Advisors in Houston, said by telephone. “U.S. oil production continues to be the primary focus of the market. There’s a general consensus that production will keep rising.”

While OPEC and its partners began cutting output in January as part of a six-month deal, International Energy Agency data show inventories rose during the first quarter in developed nations, offsetting a decline in emerging economies. The accord between OPEC, Russia and 10 other nations was intended to boost prices by eliminating a stockpile surplus of about 300 million barrels over the five-year average -- equivalent to three days of global oil production.

The curbs need to be extended through the first half of next year in order to trim stockpiles below the five-year average, according to Fereidun Fesharaki, the head of industry consultant FGE.

“All eyes are on inventories, as the market watches for signs of draws or builds in the coming months, but we’re some way away from OPEC’s target,” said Fesharaki, who founded FGE more than three decades ago. “OPEC and non-OPEC producers need to extend cuts up until the first half of 2018 to reach their goal of bringing inventories under the five-year mark.”

Oil-market news:

  • Russia retook the top spot from Saudi Arabia in crude supplies to China last month as OPEC producers are flirting with the possibility of extending a deal to curb production.
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