Oil at Seven-Month High
May 25 2016 - 3:00PM
Dow Jones News
Oil prices hit new 2016 highs on Wednesday, after the Energy
Department reported continued declines in U.S. crude inventories
and production last week.
U.S. inventories are closely watched by traders as the first
indicator of the global supply-and-demand balance. Stockpiles have
fallen in recent weeks from their highest level in more than 80
years, boosting expectations that the global glut of crude that has
weighed on prices for nearly two years is now receding.
After robust production pushed the world into oversupply in
mid-2014, companies have slashed spending on new drilling, and
production is starting to decline in the U.S. and some other
regions. In addition, unexpected production outages have cut global
supplies further this month.
U.S. oil prices have surged more than 85% from their
mid-February lows on expectations of declining global supplies.
"Crude oil prices flirt with $50, as supply disruptions stack up
on top of accelerating declines in…oil production," said Citigroup
Inc. in a note.
The U.S. Energy Information Administration said U.S. crude
stockpiles fell 4.2 million barrels last week, while analysts
polled by The Wall Street Journal had expected a decrease of 2.5
million barrels.
That news comes after the American Petroleum Institute said late
on Tuesday that its data for last week showed a 5.1-million-barrel
decrease in U.S. crude supplies.
U.S. crude oil for July delivery settled up 94 cents, or 1.9%,
at $49.56 a barrel on the New York Mercantile Exchange, the highest
settlement since October. Brent crude, the global benchmark, rose
$1.13, or 2.3%, to $49.74 a barrel on ICE Futures Europe, the
highest level since November.
U.S. output also fell for an 11th straight week to 8.8 million
barrels a day from a peak of 9.7 million barrels a day in April
2015.
"The trend of…lower-than-expected output is going to get us
above $50" in the coming days," said Phil Flynn, analyst at the
Price Futures Group.
However, gasoline stockpiles unexpectedly rose last week as
demand fell, the EIA data showed. Analysts are expecting strong
demand for gasoline this summer, starting with the Memorial Day
holiday next week, and lower-than-expected consumption could weigh
on prices.
"Demand just wasn't there," said Bob Yawger, director of the
futures division at Mizuho Securities USA Inc. Memorial Day, next
Monday, is the traditional start to the busy summer-driving season.
After that, "You should have consistent draws and if you don't,
we're in big trouble," Mr. Yawger said.
Gasoline futures settled down 1.28 cents, or 0.8%, at $1.6416 a
gallon.
Supply disruptions in Canada, Nigeria and Libya are also helping
to support the upward price momentum. However, some analysts say
the outages are likely to be temporary and many of those barrels
will come back online soon.
Diesel stockpiles fell more than expected. Diesel futures rose
2.4 cents, or 1.6%, to $1.5127 a gallon, the highest level since
November.
Georgi Kantchev contributed to this article
Write to Nicole Friedman at nicole.friedman@wsj.com and Georgi
Kantchev at georgi.kantchev@wsj.com
(END) Dow Jones Newswires
May 25, 2016 15:45 ET (19:45 GMT)
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