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U.S. oil prices end up as domestic supplies rise a 5th week, but gasoline stores drop

By Mayra P. Saefong

Petroleumworld 10 24 2018

Benchmark U.S. oil futures settled higher on Wednesday, recouping a modest portion of their losses from a day earlier, as domestic gasoline stockpiles posted a drop that was three times bigger than expected.

The decline in gasoline supplies outweighed pressure from a fifth weekly rise in crude inventories.

U.S. and global benchmark futures for crude sank by more than 4% on Tuesday, with the U.S. benchmark dropping to its lowest finish in more than two months on worries about global economic growth and expectations that supplies will remain ample in the near term, despite renewed sanctions on Iran. December West Texas Intermediate crude CLZ8, -0.87%  on the New York Mercantile Exchange rose 39 cents, or 0.6%, to settle at $66.82 a barrel. It traded at $66.88 before the supply data, after finishing Tuesday at its lowest since Aug. 20. December Brent crude LCOZ8, -0.81% the global benchmark, extended Tuesday's drop, losing another 27 cents, or nearly 0.4%, to finish at $76.17 a barrel.

The Energy Information Administration reported Wednesday that domestic crude supplies rose by 6.3 million barrels for the week ended Oct. 19. That followed four consecutive weeks of gains. Analysts surveyed by S&P Global Platts had forecast a rise of 3.3 million barrels, while the American Petroleum Institute on Tuesday reported a climb of 9.9 million barrels, according to sources.

“The overall picture on inventories was bearish on crude,” said Tariq Zahir, managing member at Tyche Capital Advisors. Still, there was a larger-than-expected draw in gasoline supplies, even though the market is past the higher demand summer driving season and at the “tail end” of the Atlantic hurricane season and headed into a “weaker demand end-of-year outlook.”

Gasoline stockpiles fell by 4.8 million barrels last week, while distillate stockpiles declined by 2.3 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply declines of 1.5 million barrels in gasoline and 2.45 million barrels for distillates.

“A solid draw to gasoline and distillate inventories have offset the bearish influence of a fifth consecutive build to crude stocks,” said Matt Smith, director of commodity research at ClipperData, adding that the drop in product supplies “was the result of a pop in implied demand.”

On Nymex, November gasoline RBX8, -1.09%  shed 0.8% to $1.822 a gallon, while November heating oil HOX8, -0.67% added 0.2%, at $2.252 a gallon.

November natural gas NGX18, +0.66%  lost 1.4% to $3.166 per million British thermal units.

The Tuesday selloff for oil was likely tied to a rush by hedge funds to book profits on a previous run-up that had taken Brent toward $86 a barrel—a rise that had been driven “in anticipation and not in reaction to strengthening fundamentals,” said Norbert Ruecker, head of macro and commodity research at Julius Baer, in a note.

Meanwhile, fundamentals have softened recently, with U.S. oil inventories on the rise and traders finding assurance in pledges by Saudi Arabia and others to boost output to offset the barrels to be lost from Iran as sanctions take full effect on Nov. 4, he said. Still, the Iran embargo leaves the oil market with only a small buffer to absorb any shocks, while Venezuela's continued production woes and erratic output from Libya remain key wild cards in the near term, he said.

Meanwhile, Zahir said he expects the “risk-off posture in the equity markets” to “continue to spill over to the energy markets.” Benchmark U.S. stock indexes trade broadly lower as oil futures settled Wednesday.

So far, traders have shown little fear that international criticism of Saudi Arabia following the killing of dissident journalist Jamal Khashoggi will prompt retaliation by the kingdom in the form of slower oil output. Saudi Arabia's energy minister earlier this week said his country would play a “responsible role” in energy markets .


Story by Mayra P. Saefong from MarketWatch.

10 24 2018 19:40 GMT

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