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Futures Movers: Oil prices end higher as traders weigh latest supply update, demand prospects

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Oil prices ended higher on Wednesday, shaking off an earlier decline, as traders parsed U.S. government data showing a more-than-3-million-barrel decline in crude inventories, and a bigger-than-expected climb in gasoline inventories.

Once traders “looked beneath the sticker shock” of a weekly rise in total U.S. petroleum stocks, “the report generally seemed positive and showed a tightening market,” said Manish Raj, chief financial officer at Velandera Energy.

The market is also still recovering from what Raj referred to as “an unwarranted drop” Monday, when prices fell over 4%, creating a “buying opportunity as traders looked to buy the dip.”

Renewed concerns about the global economy and its demand for energy had weighed on prices during much of the session, amid questions surrounding the safety of the AstraZeneca
AZN,
-1.71%

vaccine in Europe, and rise in the spread of COVID-19 variants.

Weekly gasoline demand was “disappointing as drivers may be resistant to higher prices,” said Phil Flynn, senior market analyst at The Price Futures Group.

The Energy Information Administration reported Wednesday that total finished motor gasoline supplied for the week ended April 2, which is a gauge for demand, was at 8.78 million barrels per day, down from 8.89 million barrels per day a week earlier.

“Still, the draw on crude should start a string of bigger draws in weeks to come, so we may see some buying come back in,” Flynn told MarketWatch.

U.S. crude inventories fell by 3.5 million barrels for the week ended April 2, according to the EIA. IHS Markit had forecast a decline of 700,000 barrels, while the American Petroleum Institute on Tuesday reported a 2.6 million-barrel decrease.

West Texas Intermediate crude for May delivery
CL.1,
+0.35%

CLK21,
+0.35%

tacked on 44 cents, or 0.7%, to settle at $59.77 a barrel on the New York Mercantile Exchange. June Brent crude
BRN00,
-0.28%

BRNM21,
-0.28%
,
the global benchmark, added 42 cents, or 0.7%, to $63.16 a barrel on ICE Futures Europe.

The EIA data also reported that crude stocks at the Cushing, Okla., storage hub declined by 800,000 barrels for the week, while total domestic oil production stood at 10.9 million barrels a day, down from 11.1 million barrels a day.

The government agency said the latest domestic crude-oil production estimate “incorporates a re-benchmarking that lowered estimated volumes by 92,000 barrels per day, which is about 0.8% of this week’s estimated production total.” It explained that it may “re-benchmark” the weekly production estimate if there is a “large difference” in data presented in two of its monthly reports.

Meanwhile, the EIA said gasoline supply was up by 4 million barrels, while distillate stockpiles climbed 1.5 million barrels for the week. IHS Markit forecast weekly supply increases of 200,000 barrels for gasoline and 500,000 barrels for distillates.

There’s a “conflict between rising product inventories and falling crude inventories, suggesting that the companies are planning for a demand rebound with higher refinery runs, but creating a drop in crude inventories,” Michael Lynch, president of Strategic Energy & Economic Research, told MarketWatch.

Gasoline futures bucked the uptrend in on Nymex, with the May contract
RBK21,
-0.95%

down 0.7% at $1.95 a gallon. May heating oil
HOK21,
+0.38%

rose 0.8% to $1.81 a gallon.

Oil has traded within a narrow range for the past 2 1/2 weeks as traders weigh signs of a strengthening U.S. economic recovery against prolonged business and consumer lockdowns across the eurozone, said Fawad Razaqzada, market analyst at ThinkMarkets, in a note.

Demand for oil should pick up as lockdowns are slowly removed and more countries ease travel restrictions, while the rollout of vaccines still promises an end to the pandemic, he said. The concern, however, is that the rise in demand will be offset by rising oil supply as the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, agreed last week to begin easing output curbs, while indirect talks between the U.S. and Iran could see sanctions against Tehran eventually lifted.

See: What the Iran nuclear talks mean for oil prices

“I can’t see oil prices rising significantly further,” Razaqzada wrote.

Natural-gas prices, meanwhile, settled higher, with the May contract
NGK21,
+2.44%

up 2.6% at $2.52 per million British thermal units.

The National Oceanic and Atmospheric Administration’s temperature forecasts predict below normal temperatures moving across the central and eastern U.S. over the period of April 12 to 20, said Christin Redmond, commodity analyst at Schneider Electric, in a note. That may “boost late-season heating demand for natural gas.”

However, “bullish momentum is weak” on expectations that the EIA on Thursday will report a larger-than-normal increase in U.S. natural-gas supplies in storage, she said.

On average, analysts expect to see a weekly rise of 27 billion cubic feet, which is more than the five-year average rise of 8 bcf, according to S&P Global Platts.

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