Oil extends gains on lower US stockpiles

Energy Information Administration cuts estimate for 2018

Oil prices continue to rise on reports of lower US stockpiles. Azad Lashkari / Reuters

Oil extended gains toward US$46 a barrel as US industry data showed crude and gasoline stockpiles declined.

Futures advanced as much as 2.2 percent in New York by late Wednesday afternoon UAE time, after rising 1.8 per cent in the previous two sessions. Crude inventories fell by 8.13 million barrels last week, the American Petroleum Institute was said to report. If the decline is replicated in government data Wednesday, it would be the biggest decrease since September. Gasoline supplies shrank by 801,000 barrels, the API said.

Oil remains in a bear market amid concern expanding global supply will offset curbs by Opec and its partners. Nevertheless, the Energy Information Administration cut its estimate for 2018 US production to below 10m barrels a day, the first time the government agency has lowered its forecast since it started making the projections in January.

“The wave of optimism is gathering strength this morning after the API reported a sharp drawdown in U.S. fuel supplies,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London.

West Texas Intermediate for August delivery advanced as much as 98 cents to $46.02 a barrel on the New York Mercantile Exchange, and was at $45.68 as of 8:10 a.m. local time. Total volume traded was about 27 percent above the 100-day average. Prices increased 64 cents to $45.04 on Tuesday.

Brent for September settlement climbed as much as 91 cents, or 1.9 percent, to $48.43 a barrel on the London-based ICE Futures Europe exchange. Prices rose 64 cents to $47.52 on Tuesday. The global benchmark traded at a premium of $2.24 to September WTI.

An EIA report due for release late on Wednesday was forecast to show U.S. crude stockpiles dropped by 2.45 million barrels, according to the median of 10 analyst estimates in a Bloomberg survey. Supplies remain more than 100 million barrels above the five-year average.

“We expect another downswing if the EIA data won’t confirm last night’s API data,” said Jan Edelmann, an analyst at HSH Nordbank AG in Hamburg. “Investors have begun to assume the worst in their supply-demand balances, particularly on U.S. activity.”