Oil held above $65 a barrel after U.S. crude inventories unexpectedly dropped, falling below the five-year average in a sign that OPEC-led supply cuts aimed at shrinking a glut are bearing fruit. Futures in New York were little changed after jumping to a six-week high on Wednesday. American crude stockpiles fell last week, government data showed, confounding more than 80 percent of analysts in a Bloomberg survey who expected an increase. That means inventories in the U.S., which is taking less OPEC-produced oil than ever before, are below the five-year average for the first time since 2014.
“We may start to see concerns about a supply glut later in the year if U.S. crude production increases, but at the moment we’re not seeing an oversupply,” said Mikiko Tate, a senior analyst at Sumitomo Corporation Global Research Co., said by phone from Tokyo. “Things are looking alright.”
U.S. crude inventories fell by 2.62 million barrels last week, according to the Energy Information Administration’s data on Wednesday. Analysts had forecast a gain of 3.25 million barrels, and only two of the 12 analysts had expected a decline of a lesser magnitude.
America’s gasoline inventories also tumbled for a third week to the lowest level since late January, while distillate stockpiles contracted for a sixth straight week to the lowest since December, according to the EIA. Still, while stockpiles have declined, U.S. oil production has continued to surge, with output hitting a fresh record last week. Meanwhile, U.S. weekly crude imports from seven OPEC members fell 14 percent to 1.86 million barrels a day last week, the lowest level since the EIA began collecting weekly data in 2010. The decline comes as OPEC saw record compliance with production-cut targets in February as the group continues efforts to drain a global glut.
Still, whether the decline in American inventories can reassure OPEC is uncertain. The producer group is said to be discussing changes to the way they measure the impact of their production cuts. One of the options is looking at the past seven years of inventories in OECD countries. By that measure, just looking at the U.S. part of it, inventories have about 28 million barrels to go.
Other oil-market news:
- Federal Reserve officials raised the benchmark lending rate a quarter-point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook.
- Saudi Arabia is still considering New York, Hong Kong and London for part of its initial public offering of shares in energy company Saudi Aramco, Finance Minister Mohammed Al-Jadaan said.
- The S&P 500 energy index of oil-related companies’ shares rose 2.6 percent on Wednesday, the biggest gain since November 2016.
- Commodities now act as a better hedge against core inflation than at any time in the past, said Goldman Sachs Group Inc. analysts including Michael Hinds.
Sources and photo-credits: Bloomberg with assistance by Heesu Lee