Oil Climbs After Surprise Drop in Industry Tally of US Supply

(Bloomberg) -- Crude rose in after-hours trading because an oil-industry assessment was said to show a larger-than-expected contraction in U.S. crude stockpiles.

Futures extended gains from the settlement in New York after the American Petroleum Institute was said to have reported domestic oil inventories slid by 5.2 million barrels last week. That exceeded the 3.15 million-barrel decline forecast in a Bloomberg survey. If the drop is confirmed by the government on Wednesday, it will aggravate tightening supply conditions stemming from the shutdown of a key North Sea pipeline.

“This is continuing the trend of these larger-than-consensus and larger-than-seasonal draws, which is certainly a good sign,” Ashley Petersen, lead oil analyst at Stratas Advisors in New York, said in a telephone interview. “It’s a good bellwether indicator that the demand is still there and the production isn’t overwhelming supplies.”

Oil has held above $55 a barrel in New York since mid-November as the Organization of Petroleum Exporting Countries and allied suppliers such as Russia curbed output to erode a glut. West Texas Intermediate futures, which as recently as June were down more than 20 percent for the year, now are on track to finish 2017 with a gain of almost 7 percent.

West Texas Intermediate for  February delivery traded at $57.68 a barrel at 4:40 p.m. on the New York Mercantile Exchange after ending the regular session at $57.56.

Brent for February settlement advanced 39 cents to settle at $63.80 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.12 to February WTI.

“The global oil market is under-supplied,” Pavel Molchanov, an energy research analyst at Raymond James in Houston, said by telephone. “We envision more upside in oil.”

Repairs are progressing on the Ineos Group-operated Forties Pipeline System that connects North Sea oil fields to the U.K. mainland, according to a company statement. Custom equipment has been fabricated and will be delivered parts within days to repair the hairline crack that forced a shutdown last week.

The Forties system is among the planet’s most important pipelines because the crude it delivers is used to set prices for much of the world’s crude.

Traders are weighing “a slightly tighter physical market at the moment,” Brad Hunnewell, senior equity analyst at Rockefeller & Co., said by telephone.

U.S. crude stockpiles at the key pipeline hub in Cushing, Oklahoma, probably fell by 2.2 million barrels last week, according to a forecast compiled by Bloomberg. That would be the sixth weekly drop, the longest run since July, according to data from the U.S. Energy Information Agency.

The API report was also said to show that gasoline stockpiles climbed by 2 million barrels last week, while distillate supplies shrunk by 2.85 million. The draw in distillates would be the largest decline since early November if the EIA confirms it.

Oil-market news:

Saudi Arabia expects oil revenue to jump 12 percent next year in a sign the world’s biggest crude exporter expects prices to keep rising. Saudi Arabia said its air defenses intercepted a ballistic missile fired by Yemen rebels at the royal palace in the capital, Riyadh, an attack that threatens to edge the kingdom and its chief nemesis, Iran, closer to confrontation. Evercore ISI boosted its Brent price forecasts for 2018 and 2019 by $5 a barrel to $65 and $70, respectively. TransCanada Corp. won’t be allowed to amend its application to more specifically address the alternative route approved by Nebraska regulators last month for the company’s proposed Keystone XL pipeline.


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