Oil Rally Wanes as Rising Fuel Stockpiles Stir Demand Worries

Updated on
  • U.S. gasoline and distillate inventories rose last week: EIA
  • Oil exports from northern Iraq decreased by more than half

Iraqi forces drive past an oil production plant as they head towards the city of Kirkuk on Oct. 16.

Photographer: Ahmad Al-Rubaye/AFP via Getty Images

Oil’s rally lost strength as a rise in U.S. fuel stockpiles took away some of the thrust from tensions in Iraq.

Futures ended the session 0.3 percent higher in New York, paring earlier gains. Both gasoline and distillate supplies increased last week, according to the Energy Information Administration. Crude inventories shrank less than the American Petroleum Institute had estimated. But the rally remained underpinned by geopolitical tensions, with exports from northern Iraq dropping by more than half as output from the the Kirkuk province slid for a second day.

Investors are still watching the tensions between Iraqi forces and Kurdish fighters, Phil Streible, senior market strategist at RJO Futures in Chicago, said by telephone. “Political risks that are out there, are definitely supporting prices of crude oil, and you’re seeing buying action right near that $51 level.”

Crude has closed above $51 a barrel each day since Friday amid the turmoil in Iraq. The oil market also sees geopolitical risk in growing tensions between Iran and the U.S., Goldman Sachs Group Inc. said Tuesday. Meanwhile, Gunvor Group’s Chief Executive Officer Torbjoern Toernqvist said the market is on stronger footing now than it was five months ago and oil is in a comfortable range.

American crude stockpiles dropped by 5.73 million barrels last week, according to the EIA. That compares with a 7.13 million estimate from the API.

The rise in U.S. distillate supplies was the first since late August. Refinery utilization slipped as plants including Exxon Mobil Corp.’s Joliet, Illinois refinery are said to perform planned work. Supplies at the key Cushing, Oklahoma, pipeline hub rose for an eighth straight week to the highest level since May.

“As we bring refinery utilization offline during maintenance season, we would expect to see product draws,” Nick Holmes, an analyst at Tortoise Capital Advisors LLC in Leawood, Kansas, which manages $16 billion in energy-related assets, said by telephone. The report was a “mixed bag with a lot of moving parts. That makes it a little hard to digest.”

West Texas Intermediate crude for November delivery rose 16 cents to settle at $52.04 a barrel on the New York Mercantile Exchange, the highest level in three weeks. Total volume traded was about 23 percent below the 100-day average.

Brent for December settlement inched up by 27 cents to end the session at $58.15 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.89 to WTI for December.

Flows by pipeline from Iraq to the Turkish port of Ceyhan fell to about 240,000 barrels a day on Wednesday, compared with their normal daily level of 600,000 barrels, according to a port agent familiar with the matter. The Iraqi government offensive was triggered by a non-binding Kurdish referendum on independence that was approved overwhelmingly in September.

Other oil-market news:

  • Saudi Arabian Energy Minister Khalid al-Falih plans to visit OPEC members Iraq and Algeria and non-OPEC producers Kazakhstan and Malaysia before OPEC’s next ministerial meeting on Nov. 30., according to people with knowledge of the trip.
  • OPEC is leaning toward extending a deal with Russia and other non-members to cut oil supply for a further nine months, Reuters reports, citing four unidentified OPEC officials.
  • The U.S. president’s statement on Iran was “chest-beating” and has “little or no effect” on the Islamic Republic’s oil plans, Amir Zamaninia, deputy minister for trade and international affairs at Iran’s Oil Ministry, said Tuesday.
  • Vitol Group’s negotiations to buy Noble Group Ltd.’s oil trading unit are “very complicated” and may not end in a deal, the chief executive of Vitol said, piling pressure on his Hong Kong-based rival.

— With assistance by Heesu Lee, and Alex Longley

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