Oil Rises after Drop in U.S. Inventories

Posted by Joseph Keefe

Industry data shows U.S. crude inventories fell last
week; crude oil prices near top of $4 trading

Oil prices rose on Thursday after U.S. data showed a surprise
decline in inventories, suggesting that a global glut may be
ending after moves by OPEC to cut production.

Benchmark Brent crude oil was up 70 cents a barrel at $56.54 by
1025 GMT, recovering from a drop of 82 cents on Wednesday. U.S.
light crude was 70 cents higher at $54.29 a barrel.

Both benchmarks are near the top of relatively narrow $4 ranges
that have contained trade so far this year, reflecting a period
of low volatility since the Organization of the Petroleum
Exporting Countries and other exporters agreed to cut output.

OPEC and producers including Russia aim to reduce production by
around 1.8 million barrels per day (bpd) in an attempt to drain
an oversupply that has kept prices depressed for more than two

So far OPEC appears to be sticking to its deal but other
producers, notably U.S. shale companies, have increased output,
helping swell stocks in the United States, the world's biggest
oil consumer.

Industry data on Wednesday showed U.S. crude inventories fell by
884,000 barrels in the week to Feb. 17 to 512.7 million, compared
with analyst expectations for an increase of 3.5 million barrels.

U.S. gasoline and distillate fuel stocks also fell, the American
Petroleum Institute (API) said.

Tamas Varga, analyst at London brokerage PVM Oil Associates, said
oil prices could rally further if the U.S. government's Energy
Information Administration (EIA) also reports a fall in
inventories when its data is published at 11 a.m. EST (1600 GMT)
on Thursday.

"Confirmation of the bullish set of inventory data from the EIA
this afternoon will send prices to the upper end of the current
trading range," Varga said. "If, however, the figures disappoint
those who have gone long overnight and this morning will likely
run for the exit."

Tony Nunan, risk manager at Mitsubishi Corp, said the market
needed to see that stocks outside the United States were also
falling for prices to break out of their trading ranges.

"It's a battle between how quick OPEC can cut without shale
catching up," Nunan said, referring to U.S. drilling in shale
formations that has shown an upsurge this year.

"What OPEC really has to do is get the inventories down."

By Christopher Johnson

Feb 23, 2017

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