Oil Extends Gain Above $50 as Focus Returns to U.S. Inventories

Violet Powell
April 6, 2017

Oil climbed to a near one-month high on Wednesday on signs of a gradual tightening in global oil inventories and on concerns about a supply outage at a field in the United Kingdom's North Sea that feeds into an worldwide benchmark price.

The Energy Information Administration said in its weekly report on Wednesday that the US crude stockpiles added 1.6 million barrels last week, way above market consensus of a decrease of 435,000 barrels.

While many market watchers expect demand to outstrip supply in the coming months, the rebalancing process will be gradual and any price rally could be short-lived.

Crude oil May delivery rose 22 cents, or 0.4%, to $50.46, while Brent for June delivery added 24 cents, or 0.5%, to $53.37.

Shipped oil supplies have fallen by as much as 17 percent since the beginning of the year, according to oil analysis firm Vortexa.

After pricing dips in March, the US benchmark for crude oil has risen back above $51 a barrel, but rising inventory levels could make a dent. For both benchmarks, this is the best performance since March, 8. Prices gained 79 cents to $51.03 on Tuesday, its highest close since March 7.

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But as UBS's Staunovo noted: "The estimated lead time from investment decision to production for USA shale oil is around six-to-nine months, so United States oil production should only start rising from around mid-year onwards".

"The U.S.is a larger exporter of crude than many OPEC countries", John Auers, executive vice president at energy consultant Turner Mason & Co.in Dallas, said by phone.

Refinery crude runs rose 203,000 barrels per day and utilization rates climbed 1.5 percentage points to 90.8 percent of total capacity, EIA data showed, as plants restart from spring turnarounds.

U.S. crude exports in February jumped 35 percent from a month earlier, according to the U.S. Energy Information Administration. They are also assuming US production continues to ramp up and forecast 0.8-0.9 million barrel per day of production annually through 2020.

At the heart of the bloated US market is rising production, especially from shale drillers.

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