Oil rises as U.S. supply decline signals OPEC's making progress

By Mark Shenk on 5/17/2017

NEW YORK (Bloomberg) -- Crude markets are getting some encouragement from the U.S. as supplies fell for a sixth week -- a sign that OPEC-led production curbs are starting to be felt in the world’s biggest oil-consuming nation.

Inventories fell 1.75 MMbbl last week to 520.8 million, the Energy Information Administration reported Wednesday -- less than the 2.67 MMbbl decline forecast by analysts surveyed by Bloomberg. Russia and Saudi Arabia said on Monday that they’re in favor of extending output cuts for nine months to give global stockpiles more time to reach the level targeted by OPEC and its allies.

"OPEC still has work to do," Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments, said by telephone. "They ultimately want the production cuts to pull inventories down. These numbers show that slow progress is continuing."

Russia and Saudi Arabia are the largest of the 24 producers that agreed to reduce output for six months starting in January. Ministers from the countries are scheduled to gather in Vienna on May 25 to discuss extending the curbs. Prices have slipped since reaching a 19-month high in February on speculation that surging U.S. production will undercut OPEC’s efforts.

West Texas Intermediate for June delivery increased 58 cents, or 1.2%, to $49.24/bbl at 12:13 p.m. on the New York Mercantile Exchange. Prices rose as much as 1.7% to $49.50 after release of the EIA report. Total volume traded was about 29% above the 100-day average.

Brent for July settlement rose 72 cents, or 1.4%, to $52.37/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.78 premium to July WTI.

U.S. supplies of crude are still near records and more than 100 MMbbl higher than the five-year average for this time of the year, data compiled from the EIA show. Crude production fell for the first time in 13 weeks, ending the longest stretch of gains since 2012.

Supporting market

"It’s the first time in 13 weeks that domestic production has been lower," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "That, plus draws across the board, should help support the market. This is a good report for the Saudis."

Gasoline supplies slipped 413,000 bbl, while inventories of distillate fuel, a category that includes diesel and heating oil, dropped 1.94 MMbbl to 146.8 million, the lowest since November 2015.

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