5-21-14 12:42 PM EDT | Email Article

By Myra P. Saefong and William L. Watts, MarketWatch


SAN FRANCISCO (MarketWatch) -- Oil futures gained more ground on Wednesday to top $104 a barrel, poised for their highest close in about a month after a U.S. government report showed a drop in weekly crude inventories that was much bigger than the market expected.


In its first full session as a front-month contract, July crude (CLN4) rose $1.79, or 1.8%, to $104.12 a barrel on the New York Mercantile Exchange. Prices were trading around $103.39 before the government supply data were released. Based on the most-active contracts, prices haven't closed at a level this high since April 21, FactSet data show.


The U.S. Energy Information Administration said early Wednesday crude stockpiles dropped 7.2 million barrels for the week ended May 16.


The decline was more than 23 times bigger than expected, as analysts polled by Platts were looking for a more modest decline of 300,000 barrels. But late Tuesday, the American Petroleum Institute reported that crude supplies fell by a larger 10.3 million barrels.


The large draw in crude oil is supported by a decline in weekly imports, said John Macaluso, research analyst at Tyche Capital Advisors. "Reports of rising violence in Libya [also] provide a source of support."


"No signs of Russia's withdrawal out of the Ukrainian border presents lingering uncertainty in the market," he said. However, prices technically approaching overbought levels and trading at the higher end of the ranges "leave the market susceptible for a reversal."


Gasoline supplies rose by 1 million barrels, while distillate stockpiles climbed by 3.4 million barrels, according to the EIA. Gasoline stockpiles were expected to rise by 150,000 barrels, while distillates, which include heating oil, were seen down 250,000 barrels, according to the Platts poll.


On Nymex, June heating oil (HOM4) was up a cent at $2.96 a gallon, while June gasoline (RBM4) tacked on 2 cents, or 0.7%, to $2.985 a gallon.


Over the last four weeks, motor gasoline product supplied, which offers an indication of demand, averaged over 8.9 million barrels a day, the EIA said. That is up 5.3% from the same period last year.


What's Ahead


U.S. oil traders will be looking for hints on the outlook for energy demand in the minutes from the Federal Reserve's latest meeting, which will be released shortly before the close of trading on Nymex.


Meanwhile, prices for the European benchmark on the ICE Futures exchange, July Brent crude , gained 84 cents, or 0.8%, to $110.53 a barrel.


Analysts at Citibank boosted their 2014 forecast for Brent to $109 a barrel from $103. They also raised their 2015 forecast to $105 a barrel from $95, citing "continuing tight supply through 2014 exacerbated by escalating violence in Nigeria and Iraq as well as ongoing disruption in Libya."


Back on Nymex, prices for natural gas lost ground after tallying gains of roughly 3.1% over the past two trading sessions. The EIA will issue its weekly update on natural-gas supplies on Thursday.


June natural gas (NGM14) traded at $4.51 per million British thermal units, down 4 cents, or 0.9%.


Analysts surveyed by Platts forecast a climb of between 101 billion cubic feet and 105 billion cubic feet for the week ended May 16. That would be higher than the year-ago climb of 90 billion.


In related news Wednesday, Russia signed a deal to supply China with natural gas. Gazprom (OGZPY) CEO Alexei Miller told Russian media that the contract was worth a total of $400 billion over its 30-year life, according to The Wall Street Journal.


More on MarketWatch:


'Smellin' Yellen, volume drought and Apple cheerleader Bill Miller


Mark Hulbert: Should you sell short a dull stock market?


Tiffany, Trina Solar rise, PetSmart drops

-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com


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05-21-14 1242ET

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Copyright 2014 MarketWatch
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Morningstar - 2014/5/21 - UPDATE: Oil futures top $104 as U.S. crude supply drops
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