Oil at One-Year High on Falling Stockpiles
October 19 2016 - 3:30PM
Dow Jones News
U.S. oil prices shot up to a one-year high on another week of
draining stockpiles further convinced traders that the longstanding
glut may be waning.
U.S. crude storage levels have now fallen for six of the past
seven weeks, the U.S. Energy Information Administration said
Wednesday. Storage tanks had been filled to record highs
world-wide, but the U.S. is just one spot where stockpiles have
fallen from those highs, a sign for bullish traders that daily
supply shortages are starting to eat into that glut.
"Maybe the market is just not as bad as we thought it was," said
Scott Shelton, broker at ICAP PLC.
U.S. crude for November delivery recently gained $1.40, or 2.8%,
at $51.69 a barrel on the New York Mercantile Exchange. It hasn't
traded at prices this high since July 2015. Brent, the global
benchmark, gained $1.18, or 2.3%, to $52.86 a barrel on ICE Futures
Europe.
U.S. crude stockpiles fell by 5.2 million barrels in the week
ended Oct. 14, an even larger drain that what an industry group had
forecast Tuesday and a surprise for many analysts who had expected
an addition to stockpiles. Analysts surveyed by The Wall Street
Journal had forecast an addition of two million barrels, common in
October after the end of summer driving season.
The fact that U.S. stockpiles are draining at a time they
usually grow is even more encouraging for bullish traders. The draw
was large enough to overcome an addition to gasoline stockpiles,
and the total amount of all oil and refined products in storage
fell by 3.6 million barrels. That total inventory—at 1.3 billion
barrels—is now down 2.4% since the end of August, the largest drop
over a seven-week span since February 2014.
The oil markets were much different then, with prices still over
$100 a barrel and encouraging a historic boom in oil production.
The advancements in U.S. shale led to increasing output around the
world and the Organization of the Petroleum Exporting Countries
ending its output limits in order to help its members compete with
the U.S. and other global producers.
That led rising output and inventories, and the oversupply that
many now bet are ending. U.S. drivers and Chinese refiners
responded with surging demand after prices fell by as much as
two-thirds. Now stockpiles have also fallen in recent months in
major hubs in Europe and Asia.
Imports into the U.S. also kept falling this week. And exports—
allowed less than a year ago—also keep climbing, the latest sign of
increasing competition from U.S. producers. That is narrowing the
discount that U.S. oil has traded at compared with Brent
prices.
These major shifts in the oil market have also forced OPEC to
consider agreeing to cut output for most members when the group's
energy ministers meet on Nov. 30. With stockpiles falling and OPEC
getting more serious about cutbacks, traders have become less
fearful of a return to the worst of the glut and U.S. oil prices
have gained more than 16% in just about three weeks, analysts
said.
"Everyone is pretty loathe to sell this thing down given we
don't know what's going to happen at the end of the month" at the
OPEC meeting, said Matt Smith, director of commodity research at
ClipperData, said in a note Tuesday.
Some are concerned that the decline in U.S. stockpiles will be
just temporary. Many oil investors and banks, including Goldman
Sachs, have described OPEC's plan to slash production as
"self-defeating" as higher prices may widen the market for U.S.
shale drillers who would swoop in and essentially extend the global
supply glut.
A survey of investment banks by The Wall Street Journal
predicted Brent crude will average $56 a barrel next year. But some
have predicted the recent declines in stockpiles suggest prices
could rise above $60 in the next year.
"There is a strong possibility that global demand is already
outstripping daily oil output," Phil Flynn, senior market analyst
at the Price Futures Group in Chicago, said in a note.
"Extraordinary cutbacks in global energy spending (are) starting to
show up…We are seeing U.S. oil supply tighten very quickly."
Gasoline futures recently gained 0.3% to $1.5093 a gallon.
Diesel futures are up 1.8% at $1.5962 a gallon.
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
October 19, 2016 15:15 ET (19:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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