OIL SHARPLY LOWER AS U.S. CRUDE INVENTORIES CLIMB; NATURAL-GAS FUTURES SURGE

An oil well pump jack is seen at an oil field supply yard near Denver, Colorado, U.S., February 2, 2015. REUTERS/Rick Wilking

Oil prices finished sharply lower Wednesday after the U.S. Energy Information Administration reported a larger-than-expected climb in crude stockpiles.

Late Wednesday morning, EIA indicated that domestic crude supplies grew by 2.26 million barrels in the week ended Dec. 16. Stockpiles had been expected to fall by 2.3 million barrels, according to a survey of 13 analysts and traders by The Wall Street Journal.

The unexpected rise and a conflicting report late Tuesday that showed a large decline, resulted in prices for crude-oil futures sinking after trading in positive territory earlier.

On the New York Mercantile Exchange, West Texas Intermediate crude-oil futures for delivery in February CLG7, -1.48%   fell 81 cents, or 1.5%, at $52.49 a barrel, breaking a string of three straight positive sessions.

Meanwhile, February Brent crude LCOG7, -1.48%   on London’s ICE Futures exchange declined 89 cents, or 1.6%, to $54.46 a barrel.

Late Tuesday, the American Petroleum Institute reported that U.S. crude inventories showed a drawdown of 4.1 million barrels in the week ended Dec. 16, while gasoline stocks fell by 2 million barrels and distillates dropped by 1.5 million barrels. The EIA and API reports, the latter representing producers’ voluntary account of weekly stockpiles, have often shown big discrepancies in weekly stocks.

Wednesday’s decline for crude-oil prices threatens to snap a three-day win streak for WTI oil.

“Today’s EIA report should provide some headwinds to the week’s crude rally as a build of 2.3 million barrels stands in stark contrast to analyst expectations and yesterday’s API expectation of a more than 4 million barrel draw,” said ClipperData oil analyst Troy Vincent.

A climb in crude stocks unnerves market participants on the heels of a sweeping agreement by members of the Organization of the Petroleum Exporting Countries and other major oil producers to restrain unchecked production that has resulted in a global glut of oil and a precipitous price drop since a 2014 peak.

However, some investors found cause for optimism. The EIA report also indicated that gasoline inventories declined by 1.3 million barrels and distillate inventories, which include heating oil and diesel fuels, dropped by 2.42 million barrels on the week. The WSJ poll showed analysts estimating gasoline stockpiles to have grown by 1.1 million barrels and stockpiles of distillates to have fallen by 900,000 barrels. The decline in those inventories suggests that overall supplies may be shrinking rather than ratcheting higher, which may prove supportive for crude prices over the longer term.

Phil Flynn, senior market analyst at Price Futures Group, said the headline number for EIA might be sending crude prices lower, but was heartened by the greater-than-expected declines in distillates and gasoline.

“I would say that the headline crude number was less supportive but I wouldn’t necessarily call it a bearish report. Demand is still strong and the drawdown in distillates was larger than anticipated. Everything was bullish except for the headline crude build,” Flynn said.

The inventory data interrupted trading activity that has remained muted ahead of the December holidays. Crude prices have been bolstered by expectations that OPEC will stick to a deal to reduce the global oil supply by almost 2%.

However, the market can’ t shake doubts about producers’ commitments to production caps.

Russia is among 11 non-OPEC producers that agreed to cuts along with the OPEC cartel and yet Moscow aggressively increased its output in November, calling into question the country’s commitment to the deal. Russia is the world’s top crude producer, and has pledged to cut 300,000 barrels a day.

While Russia is expected to substantially raise its mineral-extraction tax for next year, the crude export duty is set to decrease, “making crude exports in January more attractive vs. this month,” said JBC Energy in a research note.

Looking ahead, oil investors will be watching China’s final November oil data. The report was scheduled to be released Wednesday but the government said in an email it had postponed the publication, without elaborating.

In its preliminary report, China said crude imports last month rose 18% from the previous year to 32.35 million metric tons, or roughly 7.9 million barrels a day.

In other trading, Nymex reformulated gasoline blendstock for January RBF7, +0.11%—the benchmark gasoline contract—rose about a 1.2 cents, or 0.8%, to end at $1.6055 a gallon, while January heating oil HOF7, -1.88%  lost 2.87 cents, or 1.7%, at $1.6401 a gallon.

Meanwhile, natural-gas futures for January NGF17, +9.47% surged 27.9 cents, or 8.6%, to close at $3.5420 per million British thermal units, marking the highest daily gain for natural-gas futures since Dec. 28, 2015, according to Dow Jones data.

Natural-gas futures have benefited from a recent cold snap in the U.S. that is expected to shrink existing natural-gas supplies.

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