Oil prices hold gains as U.S. crude supplies rise a 5th week, but gasoline stockpiles drop

Oil futures held onto earlier gains on Wednesday, attempting to rebound hefty losses a day earlier, as U.S. gasoline stockpiles posted a drop that was three times bigger than expected—outweighing pressure from a fifth weekly rise in crude inventories.

U.S. and global benchmark futures for crude sank by more than 4% on Tuesday, with the U.S. benchmark dropping to its lowest finish in more than two months on worries about global economic growth and expectations that supplies will remain ample in the near term, despite renewed sanctions on Iran.

December West Texas Intermediate crude

CLZ8, +1.78%

 on the New York Mercantile Exchange rose 41 cents, or 0.6%, to $66.84 a barrel. It was trading at $66.88 before the supply data, after finishing Tuesday at its lowest since Aug. 20. December Brent crude

LCOZ8, +1.31%

the global benchmark, was up 20 cents, or 0.3%, at $76.64 a barrel.

The Energy Information Administration reported Wednesday that domestic crude supplies rose by 6.3 million barrels for the week ended Oct. 19. That followed four consecutive weeks of gains. Analysts surveyed by S&P Global Platts had forecast a rise of 3.3 million barrels, while the American Petroleum Institute on Tuesday reported a climb of 9.9 million barrels, according to sources.

“The overall picture on inventories was bearish on crude,” said Tariq Zahir, managing member at Tyche Capital Advisors. Still, there was a larger-than-expected draw in gasoline supplies, even though the market is past the higher demand summer driving season and at the “tail end” of the Atlantic hurricane season, and headed into a “weaker demand end-of-year outlook.”

Gasoline stockpiles fell by 4.8 million barrels last week, while distillate stockpiles declined by 2.3 million barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply declines of 1.5 million barrels in gasoline and 2.45 million barrels for distillates

On Nymex, November gasoline

RBX8, +0.97%

 rose half a cent, or 0.3%, to $1.843 a gallon, while November heating oil

HOX8, +1.07%

was little changed at $2.247 a gallon.

November natural gas

NGX18, -0.09%

 was down less than a penny at $3.206 per million British thermal units.

The Wednesday selloff for oil was likely tied to a rush by hedge funds to book profits on a previous run-up that had taken Brent toward $86 a barrel—a rise that had been driven “in anticipation and not in reaction to strengthening fundamentals,” said Norbert Ruecker, head of macro and commodity research at Julius Baer, in a note.

Meanwhile, fundamentals have softened recently, with U.S. oil inventories on the rise and traders finding badurance in pledges by Saudi Arabia and others to boost output in order to offset the barrels to be lost from Iran as sanctions take full effect on Nov. 4, he said. Still, the Iran embargo leaves the oil market with only a small buffer to absorb any shocks, while Venezuela’s continued production woes and erratic output from Libya remain key wild cards in the near term, he said.

“While in the near term prices are at risk from any further supply disruption, oil should trend lower heading into 2019 as slowing emerging market demand growth and the shale boom restore the oil market’s supply cushion,” Ruecker said.

A global equity market selloff likely added to the negative tone for oil on Wednesday, badysts said, while also underlining nagging concerns about the outlook for global growth.

Zahir said he expects the “risk-off posture in the equity markets” to “continue to spill over to the energy markets.”

So far, traders have shown little fear that international criticism of Saudi Arabia following the killing of dissident journalist Jamal Khashoggi will prompt retaliation by the kingdom in the form of slower oil output. Saudi Arabia’s energy minister earlier this week said his country would play a “responsible role” in energy markets.

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