Oil set for biggest weekly gain in two months as U.S. supply drops

LONDON (Bloomberg) -- Oil in New York headed for the largest weekly gain in more than two months as U.S. inventories declined, and the number of drilling rigs fell.

Futures are up 8.6% this week, the biggest advance since Oct. 9. Stockpiles slid by 5.88 MMbbl last week, the largest loss since June, government data showed. A 1.2 MMbbl gain was projected in a Bloomberg survey. U.S. Gulf Coast refiners typically curb deliveries at the end of the year to reduce local taxes. The number of active oil rigs in the U.S. fell by 3 to 538 this week, according to Baker Hughes, Inc.

This week’s price gain aside, the world remains awash with oil. The global glut that’s sent West Texas Intermediate toward its second yearly decline may deepen after the Organization of Petroleum Exporting Countries effectively abandoned output limits earlier this month, according to KBC Energy Economics. Brent, the benchmark for more than half the world’s crude, is poised to end 2015 with the lowest annual average price in 11 years, putting pressure on oil-exporting countries and companies.

“The rise in prices is a short-term reaction to the large draw from U.S. inventories,” Ehsan Ul-Haq, a senior analyst at KBC Energy, said by phone from London. “This doesn’t take away from the fact that global supplies continue to remain very high and U.S. stockpiles are still higher than normal and prices will remain under pressure for a few more months at least.”

U.S. Exports

WTI for February delivery rose as much as 1.1% to $37.90/bbl on the New York Mercantile Exchange and was at $37.72 as of 1:29 p.m. London time. Prices gained 3.8% on Wednesday to the highest close for a front-month contract since Dec. 8. The volume of all futures trading Thursday was about 27% below the 100-day average.

Brent for February settlement gained 16 cents, or 0.4%, to $37.52/bbl on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a 20-cent discount to WTI, having lost its premium to the U.S. grade following President Barack Obama’s decision to end a ban on oil exports.

Following the ban’s removal last week, Enterprise Products Partners LP said it will load 600,000 bbl of U.S. crude onto a tanker in the Houston Ship Channel in the first week of January. Trader Vitol Group will probably send the cargo to Europe, according to two people familiar with the transaction.

Nationwide crude stockpiles fell to 484.8 MMbbl in the week ended Dec. 18, according to the Energy Information Administration. Supplies are more than 120 MMbbl above the five-year seasonal average.