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Oil Jumps as Industry Is Said to Report Big U.S. Stockpile Draw

Jessica Summers
Updated

(Bloomberg) -- Oil rose above $48 a barrel for the first time since early June in New York after an industry report was said to show U.S. inventories shrank by the most since September.

Futures traded as much as 5 percent higher, extending the regular session’s gains. Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said. That would be the largest draw since September if Energy Information Administration data confirms the drop on Wednesday.

Futures have advanced in the past two sessions as the market appears to be tightening. Saudi Arabia will cap shipments at 6.6 million barrels a day in August, 1 million lower than a year earlier, Energy Minister Khalid Al-Falih said.

“They have chased the bears back into the woods. Sentiment in the market is mildly bullish,” James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, said by telephone.

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Even as oil surges, there are some lingering doubts on the pace of the oil market rebalancing, with rising supplies from the U.S., Libya and Nigeria threatening to hinder curbs by members of the Organization of Petroleum Exporting Countries and its allies. Saudi Arabia won’t act alone to balance the market and other nations should improve their implementation of supply cuts, Al-Falih said Monday.

West Texas Intermediate for September delivery climbed to $48.55 at 5:03 p.m. on the New York Mercantile Exchange, after settling at $47.89 a barrel for the highest close since June 6. Total volume traded was about 25 percent above the 100-day average.

See also: While the Oil Patch Bleeds, Gas Drillers Race to Unleash Wells

Brent for September settlement added $1.60 to end the session at $50.20 a barrel on the London-based ICE Futures Europe, the first close above $50 since June. The global benchmark crude traded at a premium of $2.31 to WTI.

Focus on Fundamentals

Contango, the market structure where contracts for expiration months ahead trade at a premium to near-term futures, has been shrinking. The spread between the current WTI contract and the one for delivery a month later has narrowed to 13 cents, the least since September 2015.

“It’s increasingly difficult to argue that there is a glut or an overhang of inventory when you see these calendar spreads basically discouraging people from holding inventory,” Tim Evans, an analyst at Citi Futures Perspective in New York, said by telephone. “This suggests some internal tightness in the market that’s not necessarily fully reflected in the outright price level.”

Gasoline supplies rose by 1.9 million barrels last week, and Cushing inventories shrank by 2.57 million barrels, according to the API. A 2.57-million-barrel crude draw would the largest since February 2014 when compared with EIA data. U.S. crude stockpiles probably dropped by 3 million barrels, and gasoline supplies likely slipped by 1.8 million barrels last week, according to the median estimate in a Bloomberg survey before an EIA report.

“Fundamentals are tightening. Things are looking a little bit better,” Michael Loewen, a strategist at Scotiabank in Toronto, said by phone. “If we continue to see demand do well and some refined products draws in gasoline and distillates, the market should perform pretty well.”

Oil-market news:

  • The U.A.E. reiterated its commitment to the OPEC agreement on production cuts and said it would deepen its own curbs.

  • Nexen confirms Buzzard oil field flows cut by maintenance and the work will last until mid-August, the company said in an emailed response to questions.

  • OPEC member Kuwait plans to start trading energy and not just producing it, joining other Middle Eastern producers eager to claw back some of the profit traders like Vitol Group and Glencore Plc earn by buying and selling the region’s oil.

--With assistance from Ben Sharples and Angelina Rascouet

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Carlos Caminada, Mike Jeffers

©2017 Bloomberg L.P.