Oil prices pared losses Wednesday after the U.S. Federal Reserve decided to leave its benchmark interest rate unchanged.
Brent futures fell 55 cents to $63.15 a barrel by 2:04 p.m. EDT (1804 GMT). Front month U.S. crude futures were down 60 cents at $59.37 per barrel.
The day’s rally faded earlier on Wednesday after data from the U.S. Energy Information Administration showed that U.S. gasoline inventories rose unexpectedly and stocks at Cushing increased for the first time since April, while refinery utilization rates fell.
Investors had been expecting gasoline stocks to fall due to strong demand ahead of the summer driving season.
“The decline in refinery utilization is also bearish for crude oil price, since any diminution in demand will cause the recent trend of crude oil inventory declines to reverse,” said John Kilduff, partner at Again Capital LLC in New York.
Crude inventories fell by 2.7 million barrels in the last week, compared with analysts’ expectations for a decrease of 1.7 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 112,000 barrels.
Oil climbed by more than a dollar to above $65 a barrel earlier on Wednesday as strong demand and expectations for falling stockpiles in the United States pushed prices higher.
JPMorgan said in its weekly oil research note that U.S. production had reached a new high this week, but that it would start to drop.
An expected fall in U.S. crude production due to the relatively high cost of producing shale has also been supportive of prices.
Despite the demand strength in the United States and Asia, prices have mostly stayed below $65 a barrel this year, compared with Brent crude’s $115 this time last year.
An excess supply of oil in the Atlantic basin has seen traders leave full tankers at sea.
“There are so many tankers floating for prompt delivery that people will want to see the fall in shale production, rather than predictions of a decline, before it will give much support,” said Maarten van Mourik, an independent oil economist in Paris.
Yet some analysts expect prices to rise somewhat going into the second half of the year because of strong demand and an expected fall in stocks.
“Fundamentals are at an inflection point and will improve from here with high refinery runs this summer and sequentially declining U.S. crude production. As crude stocks erode, prices will gradually strengthen,” said U.S.-based Pira Energy.
Strong U.S. fuel demand, this week’s tropical storm, recent Canadian wildfires that led to the closure of oil production as well as ongoing stock withdrawals have resulted in U.S. prices outperforming international Brent contracts, pulling down Brent’s premium to January lows of around $3 per barrel.
Source: Reuters
