Crude oil futures prices rallied late Wednesday in response to a rebound in equities prices and shook off bearish U.S. oil inventory data to settle modestly higher.
Prices went into a tailspin, dropping by as much as 1.9% intraday after the Energy Information Administration said crude oil stocks jumped by 2.7 million barrels last week. Analysts had expected a drop of 800,000 barrels, but a jump in imports and the highest domestic output since February 1999 pushed inventories higher.
The EIA data, which also showed unexpectedly large builds in inventories of gasoline and distillate fuel (diesel/heating oil) and an 11-year low in gasoline demand in the peak of the summer season, was "bearish in just about every single way," said Andy Lebow, a vice president of energy futures at Jeffries Bache.
But by late in the session, as U.S. equities were poised to post the first rise in four sessions, market sentiment turned, said Gene McGillian, broker and analyst at Tradition Energy.
"We're seeing some new longs coming in," he said, referring to investors expecting crude prices to go higher. "Whether we get to $90 a barrel depends on how loud the chorus becomes" of Fed officials calling for action.
The Wall Street Journal reported Wednesday that Fed officials, impatient with sluggish growth and high unemployment, are moving closer to taking new action to spur the economy.
Analysts said some market participants are reluctant to aggressively sell, given the smoldering tensions over Iran and increasing instability in Syria.
"It's really tough to make a bearish case for crude, given the Middle East situation," said Bill O'Grady, chief market strategist at Confluence Investment Management.
Light, sweet crude oil for September delivery on the New York Mercantile Exchange settled 47 cents higher, at $88.97 a barrel, after hitting a post-data low of $86.84 a barrel. September North Sea Brent crude on the Intercontinental Exchange settled 96 cents higher, at $104.38 a barrel.
Gasoline prices settled lower for a third day, having shed 15 cents a gallon in that stretch amid weak demand and rising oversupply.
Mr. O'Grady said "persistent high unemployment is putting the kabosh on driving and gasoline consumption," while improved vehicle fuel efficiencies also are having an impact.
EIA data show gasoline output topped demand in the latest week by 600,000 barrels a day, the widest margin since February. That excess gasoline is going into inventories or being exported to feed growing demand in Latin America.
"Refiners are really cranking it out," said Kyle Cooper, managing partner at IAF Energy Advisors. "This is the peak demand period for gasoline in the U.S., but it really remains lackluster."
U.S. implied gasoline demand was 8.66 million barrels a day, EIA data show. That's 3.8% below a year ago and nearly 1 million barrels a day below the level in the same week of 2010, which was the highest demand level in that year.
August-delivery reformulated gasoline blendstock futures fell 3.19 cents to $2.7929 a gallon, a two-week low.
Heating oil for August delivery settled 1.96 cents higher, at $2.844 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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