Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[William Watts, MarketWatch]
Oil futures struggled to maintain gains Wednesday after government data showed an unexpected rise in U.S. crude inventories, disappointing bullish traders looking for signs of shrinking stockpiles.
Crude oil for May delivery CLK7, +0.31% was up 9 cents, or 0.2%, at $51.12 a barrel, but well off a session high of $51.88. Brent oil LCOM7, +0.41% —the international benchmark—was up 16 cents, or 0.3%, at $54.31 a barrel. Both benchmarks were on track for their highest settlements since early March.
But upside momentum was dented after the Energy Information Administration said U.S. crude inventories rose by 1.6 million barrels last week. Analysts surveyed by The Wall Street Journal had forecast a 200,000 barrel decline in inventories, while reports said data released late Tuesday by the American Petroleum Institute, and industry trade group, had shown a 1.8 million barrel decline.
Rising U.S. oil inventories are “still like a chain round the neck of the market” because they allow bears to point to supply fears, said Phil Flynn, senior market analyst at Price Futures Group in Chicago, in a phone interview.
Flynn said the continued rise in inventories and U.S. output overshadow underlying bullish themes, including strong demand for gasoline and other products as well as global production cuts by the Organization of the Petroleum Exporting Countries and other major oil producers that are expected to be extended this summer.
There was some disappointment in smaller-than-expected declines in gasoline and distillate inventories, which fell by 600,000 barrels and 500,000 barrels, respectively. Analysts had forecast a 1.6 million barrel drop in gasoline demand and a 700,000 barrel fall in distillate supplies, which include diesel and heating oil.
A rise in refinery utilization to 90.8% from 89.3% a week earlier, however, likely backstopped futures, allowing oil to remain higher on the day, Flynn said. Analysts had forecast utilization to rise to 89.9%. As a rule of thumb, analysts see every percentage point rise in utilization boosting demand by around 150,000 barrels.
Oil prices have risen in recent weeks on hopes OPEC and prominent producers such as Russia agree to roll over a production-cut agreement, which is currently slated to end in June. The group is due to make a decision on May 25.
Nymex reformulated gasoline blendstock for May RBM7, -0.33% —the benchmark gasoline contract—fell 1.18 cents, or 0.7%, to $1.7099 a gallon, while May heating oi lHOK7, +0.70% rose 0.94 cent, or 0.6%, to $1.6017
Natural gas for May NGK17, -0.49% rose 2.5 cents, or 0.8%, to $3.318 per million British thermal units.
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