Oil futures climbed more than 1 percent on Wednesday to their highest in more than a week as buyers were encouraged by a small weekly decrease in U.S. production and shrugged off a surprise build in crude inventories in the world’s top oil consumer. The U.S. Energy Information Administration (EIA) said crude stocks rose 118,000 barrels last week, while weekly production declined 100,000 barrels per day (bpd) to 9.3 million bpd. Prices rose after the EIA’s report, even though data showed a build instead of the 2.6 million-barrel draw that analysts had forecast in a Reuters poll. “The most interesting thing is crude oil production was down … which is a significant decline given the increases in previous weeks,” Andrew Lipow, president of Lipow Oil Associates in Houston, said. He said production was most likely affected by a storm in the Gulf of Mexico last week.
Also, the production decline came after U.S. output reached almost 9.4 million bpd during the prior week, the most since August 2015. Brent futures gained 66 cents, or 1.4 percent, to settle at $47.31 a barrel, while U.S. West Texas Intermediate crude rose 50 cents, or 1.1 percent, to settle at $44.74 per barrel.
That was the highest close since June 16 for the contracts, putting them up for the fifth day in a row for the first time since mid-May. Both benchmarks were up over 5 percent since June 21 when Brent fell to a seven-month low of $44.35 and WTI fell to a 10-month low of $42.05. Ian Taylor, head of the world’s largest independent oil trader Vitol, said Brent will stay in a range of $40-$55 a barrel for the next few quarters as higher U.S. production slows a rebalancing of the market.
Analysts at JBC Energy in a report saw room for prices to recover. “While the physical crude market remains steady at best, it is worth noting there is now significant room for speculative support for prices to develop if a catalyst were to emerge,” JBC said. Still, global supplies are ample despite output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producing countries of 1.8 million bpd since January.
OPEC and the other producers, trying to reduce a crude glut, agreed in May to extend the supply cut through March 2018. Still, crude prices have been pressured on rising production from the United States and from Nigeria and Libya, two OPEC members exempt from cutting output. OPEC delegates have said they will not rush to cut crude output further or end the exemptions, although a meeting in Russia next month is likely to consider further steps to support the market.