*API said to report crude stocks fell 5.8 million barrels
*Industry estimate for gasoline draw said to be 5.7 million
06 July 2017, London — Oil pared losses after an industry group was said to report big declines in U.S. crude and gasoline stockpiles that have remained stubbornly high during this summer driving season.
The day’s news reflected the ongoing debate over whether prices are more reflective of actions undertaken in U.S. shale fields, or by an OPEC-led push to balance the market with production cuts elsewhere.
Futures fell as much as 5.4 percent on Wednesday, as Russia was said to oppose any proposal to deepen the output cuts. Prices recovered somewhat on American Petroleum Institute estimates said to show crude inventories fell by 5.8 million barrels last week and gasoline supplies dropped by 5.7 million. West Texas Intermediate for August delivery settled $1.94 lower.
“Any opposition to deeper output cuts supports the doubters of the effectiveness of the supply deal, fueling bearish oil-market sentiment,” said Norbert Ruecker, head of commodities research at Julius Baer Group Ltd. in Zurich.
While crude prices surged last week, futures are down about 15 percent for the year amid concerns that rising global supply will offset the output cuts from the Organization of Petroleum Exporting Countries and its partners. Libya and Nigeria, which are exempt from the agreement, accounted for half of the group’s production boost last month, according to data compiled by Bloomberg.
West Texas Intermediate for August delivery settled $1.94 lower at $45.13 a barrel on the New York Mercantile Exchange. Futures reached $45.65 at 4:57 p.m. after API data was released. Tuesday’s transactions were booked Wednesday for settlement purposes because of the U.S. Independence Day holiday. Prices gained almost 11 percent in the eight days through Monday.
Brent for September settlement closed at $47.79 a barrel on the London-based ICE Futures Europe exchange, down $1.82. The global benchmark touched $48.32 after the API report.
“Everybody’s been talking about the death of gasoline demand, but we didn’t see that this weekend,” Phil Flynn, senior market analyst at Price Futures Group, said after the API report. “Maybe it’s not as weak as we thought.”
As for the pact between OPEC, Russia and their allies to reduce output by a combined 1.8 million barrels a day through March 2018, deepening the cuts would suggest that they are nervous that the pact isn’t doing enough to support prices, one of the Russian officials said.
Russia “pretty much threw cold water” on rumors of additional cuts, said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. “Now we’ll see if this rally was based on loose expectations that there could’ve been some agreement or additional cuts, or if it was a rally on short-covering.”
A short-covering rally is when short-sellers take advantage of low prices to go on a buying spree to return securities they borrowed and sold when prices were higher.
*Meenal Vamburkar – Bloomberg