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U.S. oil benchmark falls Wednesday as U.S. inventories drop; Gasoline futures end at 4-month high

Por Myra P. Saefong / MarketWatch

Petroleumworld 03 06 2019

A drop in U.S. gasoline stockpiles that was more than double market expectations lifted futures prices for the fuel to their highest in over four months on Wednesday.

U.S. benchmark oil prices, however, declined following a hefty weekly rise in domestic crude inventory.

The drop in gasoline supplies helped to offset pressure on crude-oil prices—keeping them off their lows of the session.

West Texas Intermediate crude for April delivery CLJ9, -0.67%  gave up 34 cents, or 0.6%, to settle at $56.22 a barrel on the New York Mercantile Exchange. It was trading at $55.62 before the supply data. May Brent LCOK9, +0.08% however, tacked on 13 cents, or 0.2%, to $65.99 a barrel on ICE Futures Europe.

April gasoline RBJ9, +1.09%  rose 1.2% to $1.789 a gallon on Nymex—the highest finish for a front-month contract since Oct. 30, according to FactSet data. April heating oil HOJ9, -0.17%  settled little changed at $2.016 a gallon.

“The headline number of such a larger-than-expected [crude] build, coupled with U.S. production holding its recent production increases, along with another build in Cushing, [the Oklahoma delivery hub for Nymex futures] should…continue to weigh on crude oil,” said Tariq Zahir, managing member of Tyche Capital Advisors.

The Energy Information Administration on Wednesday reported that U.S. crude supplies rose by 7.1 million barrels for the week ended March 1. That was well above the average climb of 1.9 million barrels expected by analysts polled by S&P Global Platts, but just under the 7.3 million barrel increase reported by the American Petroleum Institute data on Tuesday .

“Despite another increase in refinery runs, a big bounce in imports…has led to a sixth build to oil inventories in seven weeks as we truck on through refinery maintenance season,” said Matt Smith, director of commodity research at ClipperData.

‘Gasoline and distillate inventories have provided a counterweight to the crude build, both showing chunky draws—although this is a seasonal trend, hence is none too shocking.' Matt Smith, ClipperData

“Gasoline and distillate inventories have provided a counterweight to the crude build, both showing chunky draws—although this is a seasonal trend, hence is none too shocking,” he added.

Supplies of gasoline fell by 4.2 million barrels, while distillates edged down by 2.4 million barrels last week, according to the EIA. The S&P Global Platts survey had shown expectations for supply declines of 2 million barrels for gasoline and 1.4 million barrels for distillates.

WTI oil prices ended slightly lower on Tuesday after China cut its economic growth target for this year to between 6% and 6.5% and on news that Libya planned to boost crude production following the reopening of its largest oil field. Prices for global benchmark Brent crude, however, managed to finish modestly higher Tuesday, getting a lift from ongoing output cuts among members of the Organization of the Petroleum Exporting Countries and their allies.

Read: Goldman urges caution on commodities, warns rally may fade

While OPEC is curbing production, U.S. crude production continues to sit at a record. The EIA report Tuesday showed that total weekly output was unchanged at 12.1 million barrels a day.

“Consensus for 2019 is for WTI crude to reach $62/barrel, according to Bloomberg data. This is supported by an expectation that the global oil market will remain in balance during Q1 and move to a slight deficit in Q2 of this year,” said Maxwell Gold, investment strategist with Aberdeen Standard Investments.

“A key risk, however, remains the U.S. shale market which can switch on production if prices continue to creep higher,” he said. “This balancing act between U.S. and OPEC production will remain in focus along with geopolitical risk. If OPEC remains committed to its current cuts, however, crude oil may have room to run higher this year as global demand remains strong.”

In other energy trading, April natural gas NGJ19, -1.32%  shed 1.5% to $2.841 per million British thermal units. An EIA report due Thursday was expected to show a weekly decline in natural-gas supplies of 146 billion cubic feet, according to an S&P Global Platts survey.

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