UPDATE: Oil prices drop as gasoline futures sink to a 7-week low

12/06/17 03:27 PM EST

By Myra P. Saefong, MarketWatch , Christopher Alessi

U.S. crude stockpiles drop, but gasoline supplies jump: EIA

Oil finished lower on Wednesday, as a weekly jump in U.S. gasoline stockpiles that was more than twice what the market expected pulled crude futures to their lowest level since mid-November and gasoline futures to their lowest settlement in about seven weeks.

January West Texas Intermediate crude lost $1.66, or 2.9%, to settle at $55.96 a barrel on the New York Mercantile Exchange--for its lowest finish since Nov. 16, according to FactSet data. Brent oil for February gave up $1.64, or 2.6%, to $61.22 a barrel on the ICE Futures Europe exchange, its lowest since Nov. 2.

The U.S. Energy Information Administration reported Wednesday that domestic crude supplies fell (http://www.marketwatch.com/story/eia-reports-a-fall-in-us-crude-supply-but-gasoline-stocks-rise-more-than-expected-2017-12-06) 5.6 million barrels for the week ended Dec. 1. That was bigger than the forecast for a decline of 4.1 million barrels from analysts surveyed by S&P Global Platts. The American Petroleum Institute on Tuesday (http://www.marketwatch.com/story/api-data-reportedly-show-drop-in-us-crude-supplies-rise-in-gasoline-stockpiles-2017-12-05) had reported a drop of 5.5 million barrels.

"A solid draw to crude inventories amid higher refinery runs--hark, nearly 800,000 [barrels per day] above year-ago levels--has been offset by a whopper of a build to gasoline inventories," said Matt Smith, director of commodity research at ClipperData.

The EIA pegged last week's domestic crude inventories at 448.1 million barrels. They are now 9.1 million barrels below their level during the same week in 2015, but "they are still more than 100 million barrels above their level from the same week during 2014," said Jenna Delaney, senior oil analyst at S&P Global Platts.

Gasoline stockpiles jumped by 6.8 million barrels for the week, while distillate stockpiles added 1.7 million barrels, according to the EIA. The S&P Global Platts survey forecast a supply rise of 2.7 million barrels for gasoline and an increase of 1.5 million barrels for distillates.

Gasoline for January fell 3.4% at $1.661 a gallon, with the settlement the lowest since Oct. 19.

Among the heating fuels, January heating oil settled at $1.861 a gallon, down 2.8%. January natural gas rose 0.3% to $2.922 per million British thermal units.

Refiners "actually beat demand with [gasoline] production at a near record 9.758 million barrels a day, compared to daily demand of 8.895 million barrels a day last week," said Phil Flynn, senior market analyst at Price Futures Group.

Domestic refineries operated at 93.8% of operable capacity last week, up from 92.6% a week earlier, the EIA data showed.

"As refiners are encouraged to keep running full tilt, and as oil imports remain depressed, crude inventories continue to draw, while gasoline inventories rise," said Smith.

"All the while, crude from the [U.S. Strategic Petroleum Reserve] continues to find its way into commercial stocks," he said. "U.S. oil inventories would be 32 million barrels lower if it weren't for SPR releases this year--down over 110 million barrels from March's record, rather than the 80 million barrels they are down now."

U.S. crude production continued to edge higher, with total domestic output at about 9.7 million barrels a day last week, up 25,000 barrels a day, according to the EIA.

The Organization of the Petroleum Exporting Countries and its allies, including non-OPEC Russia, agreed last week to extend a deal to hold down crude output (http://www.marketwatch.com/story/heres-what-opecs-extended-oil-production-cuts-mean-for-the-market-2017-11-30) by nearly 2% through the end of next year. An extension had been largely priced in but rising U.S. oil production has been a key concern for the market.

Meanwhile, one of the world's best-known oil traders, Pierre Andurand, who runs a big hedge fund specializing in black gold, Andurand Capital, says rising demand will again be a factor. Back in September 2015, he forecast crude would slump to between $25 and $30, five months before prices dipped to around $26. He is now striking a remarkably upbeat tone (http://www.marketwatch.com/story/trader-who-predicted-oil-under-30-says-prices-could-rally-to-100-2017-12-06) on the commodity.

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

 

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12-06-17 1527ET

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