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Aug. 5, 2020, 3:07 p.m. EDT

Oil ends at 5-month high after data shows drop in crude supplies but rise in gasoline inventories

Drop in U.S. crude inventories despite rebound in imports

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By William Watts, MarketWatch


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Oil futures posted the highest close in five months, but ended off session highs, after data confirmed a large drop in crude inventories while also showing an unexpected rise in gasoline stocks that undercut notions of a pickup in demand.

/zigman2/quotes/211629951/delayed CL.1 38.71, -1.89, -4.66%

West Texas Intermediate crude for September delivery /zigman2/quotes/211629951/delayed CL.1 -4.66%   rose 49 cents, or 1.2% to finish at $42.19 a barrel on the New York Mercantile, after rising as high as $43.52 immediately after the data. The global benchmark, October Brent crude /zigman2/quotes/209704782/delayed UK:BRN00 -4.04%  , closed at $45.17 a barrel, up 74 cents, or 1.7%, on ICE Futures Europe. Wednesday’s settlements were the highest since March 6 for both benchmarks.

The Energy Information Administration said U.S. crude stocks fell by 7.4 million barrels in the week ended July 31, while gasoline inventories rose 419,000 barrels and distillate supplies increased by 1.6 million barrels.

“Despite ongoing subdued refining activity amid stymied demand, oil inventories showed a large draw, even though we saw a rebound in imports,” said Matt Smith, director of commodity research at ClipperData. “The U.S. Gulf Coast accounted for the entire drop, where inventories drew by 7.4 million barrels amid low waterborne imports and ongoing strength in exports.”

Meanwhile, gasoline and distillate inventories rose “as implied demand continues to be adrift of year-ago levels,” he said.

Analysts surveyed by S&P Global Platts, on average, had looked for EIA crude inventories to show a fall of 4.1 million barrels, while gasoline stocks are forecast to decline 1.3 million barrels and distillate supplies are seen rising 100,000 barrels.

Gains for crude were stoked late Tuesday when the American Petroleum Institute, an industry trade group, said U.S. crude-oil inventories fell 8.6 million barrels last week, according to sources. API said gasoline stocks fell by 1.7 million barrels, while distillate supplies rose by 3.8 million barrels.

Some market watchers warned that upbeat expectations reflected by the crude rally may be premature.

“Though fears of weak demand due to corona are beginning to recede into the background at present, we believe the optimism displayed by oil market participants and oil prices themselves to be excessive,” said Eugen Weinberg, commodity analyst at Commerzbank, in a note. “OPEC’s premature expansion of production and the fact that demand remains fairly weak argue against any further price rise.”

On the supply side, OPEC+ pledged to cut output by 9.7 million barrels a day beginning in May, easing to 7.7 million barrels a day this month and running through the end of the year. Countries that exceeded the earlier curbs are supposed to further curtail output, which means output is targeted to rise by around 1.5 million barrels a day beginning this month, though skeptics doubt that past violators of such agreements will fully comply.

Crude’s rally was also in tune with gains for stocks, with U.S. equities trading solidly higher.

In other energy trading, September gasoline  rose 0.85 cent, or 0.7%, finishing at $1.2228 a gallon, while September heating oil  rose 0.47 cent, or 0.4%, to settle at $1.2631 a gallon.

September natural-gas futures  gave up 0.2 cent, or 0.1%, to close at $2.191 per million British thermal units after strong back-to-back gains. Natural gas remains up more than 20% so far this week.

/zigman2/quotes/211629951/delayed
US : U.S.: Nymex
$ 38.71
-1.89 -4.66%
Volume: 269,902
Sept. 29, 2020 12:44p
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/zigman2/quotes/209704782/delayed
UK : U.K. ICE Futures Europe
$ 41.14
-1.73 -4.04%
Volume: 246,642
Sept. 29, 2020 5:44p
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William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter @wlwatts.

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