Oil Inches Higher as Industry Is Said to Report Big Supply Drop

Updated on
  • U.S. crude stockpiles fell 9.2 million barrels last week: API
  • Cushing and gasoline supplies rose, while distillates dropped

Ed Morse, global head of commodities research at Citigroup, explains why U.S. shale oil holds an advantage over OPEC and offers his outlook for the Permian basin. He speaks with Bloomberg's Alix Steel on 'Bloomberg Daybreak: Americas.' (Source: Bloomberg)

Oil edged up after an industry report was said to show a big decline in U.S. inventories that softened, but failed to end, concerns about surging production from shale fields.

Crude stockpiles tumbled by 9.2 million barrels last week in an American Petroleum Institute report released Tuesday, according to people familiar with the data. That would be the largest crude draw since September if Energy Information Administration data confirm it on Wednesday. Meanwhile, production at shale fields is forecast to hit a record in September, with the gain being led by the oil-rich Permian Basin of Texas and New Mexico.

“I would suspect that we are going to get a pretty big draw and may reverse some of yesterday’s real big decline,” James Williams, an economist at WTRG Economics, said by telephone. Yet “even a big draw is bucking up against some very bearish numbers from the EIA yesterday” on shale output rising to a record in September.

Oil in New York has been unable to hold a rally above $50 a barrel this month as investors’ concerns about rising supplies outweigh cuts by the Organization of Petroleum Exporting Countries and its allies. Citigroup Inc.’s Ed Morse says U.S. shale will prevail over OPEC as the two rivals compete.

“With producers unwilling for the time being to contemplate deeper supply cuts, we’re stuck in the same situation. How do you actually rebalance the market if the efforts you are making are not sufficient in light of what’s happening elsewhere?" Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone.

West Texas Intermediate for September delivery traded at $47.73 as of 4:47 p.m. on the New York Mercantile Exchange, after settling at $47.55 a barrel. Total volume traded was about 15 percent above the 100-day average.

Brent for October settlement rose 7 cents to end the session at $50.80 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.10 to October WTI.

Cushing supplies rose by 1.7 million barrels last week, gasoline supplies climbed by 301,000 barrels and distillates slid by 2.1 million barrels, according to the API.

Crude inventories probably shrunk by 3.4 million barrels last week and gasoline stockpiles by 900,000 barrels, according to a Bloomberg survey. Yet, crude supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose 700,000 barrels last week, according to a Bloomberg-compiled forecast.

“If we continue with declines in crude inventories and gasoline inventories, then I’d think we’d have some stabilization in the price of oil,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, said by telephone.

Oil-market news:

  • Libya’s biggest oil field, Sharara, is increasing production and the Zueitina port is again allowing tankers to load, paving the way for the OPEC nation’s crude output to rebound.
  • Investors are worrying over the potential fallout when OPEC’s deal to cut output expires, with uncertainty about the return of supplies in 2018 clouding the outlook for crude, according to BMI Research.

— With assistance by Ben Sharples, Abigail Morris, and Nico Grant

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