Oil Had Its Best Day This Year as Supply Drop Eases Glut Concern

  • U.S. stockpiles fell 5.25 million barrels last week: EIA
  • More than double 2 million barrel drop forecast by analysts

Oil Resumes Gains on U.S. Data

Oil had its best day this year after U.S. crude stockpiles tumbled, easing concerns that the shale revival will prolong a supply glut.

Stubbornly high crude inventories, a measure that’s been closely watched by OPEC and other market participants, had the biggest drop of the year, declining 5.25 million barrels. Supplies of gasoline and distillate fuel also declined, giving hope to those searching for signs that the glut is easing.

"This is another bullish week of inventory numbers," Cavan Yie, senior equity analyst at Manulife Asset Management Ltd. in Toronto, said by telephone. "Crude inventories declined more than expected despite the uptick in U.S. production because imports are down. Product inventories dropped as well, pointing to robust demand."

But crude continues to trade below $50 a barrel in New York as American shale explorers are boosting drilling budgets 10 times faster than the rest of the world and production is returning in Libya. Saudi Arabia and Russia are signaling a willingness to prolong output cuts into 2018 to bring inventories down further. Ministers will meet again in Vienna on May 25 to make the final decision on any extension.

West Texas Intermediate for June delivery climbed 3.2 percent, the most since Dec. 1, to settle at $47.33 a barrel on the New York Mercantile Exchange. Total volume traded was about 35 percent above the 100-day average.

Brent for July settlement rose $1.49, or 3.1 percent, to $50.22 on the London-based ICE Futures Europe exchange. That was also the biggest increase since Dec. 1. The global benchmark crude closed at a $2.52 premium to July WTI.

Ample Stockpiles

U.S. supplies of crude are still near records and more than 100 million barrels higher than the five-year average for this time of the year, data compiled from the Energy Information Administration show.

Crude production advanced for an 12th week, capping the longest stretch of gains since 2012. It reached 9.31 million barrels a day last week, the highest since August 2015. U.S. explorers added 6 oil rigs last week to 703, the highest since April 2014, Baker Hughes Inc. data show.

"We’ve been waiting for evidence of inventory declines globally and are focused on today’s data because the U.S. is most transparent," Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $17.2 billion, said by telephone. "Inventories should decline week after week as we move toward the summer.

U.S. refineries typically increase crude processing in May as they prepare for the summer peak driving season. Crude processing volumes have increased in the second quarter in each year in EIA data going back to 1989.

See Also: Shale Drillers Are Outspending the World With $84 Billion Spree

Supplies of gasoline slipped 150,000 barrels, the first decline in four weeks. Inventories of distillate fuel, a category that includes diesel and heating oil, dropped 1.59 million barrels, the 12th decline in 13 weeks.

June gasoline futures rose 3.4 percent to close at $1.5396 a gallon. Diesel for December delivery advanced 2.3 percent to settle at $1.4754.

Oil-market news:

  • OPEC’s estimate of its oil production last month, compiled from five of six external data known as secondary sources, fell to 31.732 million barrels a day, according to a person familiar with the matter.
  • Oil demand will significantly exceed supply in the second quarter and will outpace it even more in the second half of 2017 if OPEC extends its deal, International Energy Agency head of oil markets Neil Atkinson said.
  • Pierre Andurand, who made a name for himself by predicting swings in the oil market, is preparing to start an equities hedge fund betting on energy companies, according to people with knowledge of the matter.
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