Futures Movers: Oil ends sharply higher as U.S. crude inventories decline

Oil futures continued their rebound off multiyear lows Wednesday, ending sharply higher after data revealed U.S. crude inventories posted an unexpectedly large decline last week.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG6, +4.90%  rose $ 1.36, or 3.8%, to end at $ 37.50 a barrel. February Brent crude on London’s ICE Futures exchange LCOG6, +4.87%  gained $ 1.25, or 3.5%, to finish at $ 37.36 a barrel, ending a five-session losing streak.

Oil extended gains after the Energy Information Administration said crude stockpiles fell by 5.9 million barrels in the week ended Dec. 18. Analysts surveyed by The Wall Street Journal had penciled in a rise of 600,000 barrels, while the American Petroleum Institute, on Tuesday, reported a 3.6 million barrel decline.

At the same time, crude stocks at the Nymex delivery hub in Cushing, Okla., rose by 2 million barrels. Gasoline stocks rose 1.1 million barrels, in line with forecasts, while distillates, including diesel and heating oil, fell by 661,000 barrels versus forecasts for a rise of 2.1 million barrels.

Oil maintained gains after Baker Hughes, the oil-field services firm, said the number of U.S. oil rigs fell by three in the latest week.

Oil was on the rise ahead of the data. OPEC early Wednesday, in its closely watched World Oil Outlook, said oil prices were set to rise, but that it would be a long slog. The cartel said it expects the price of its basket of crude to recover to $ 70 a barrel in 2020 and to $ 95 a barrel in 2040.

The “need to develop oil production in more expensive areas will drive long-term oil prices higher,” the cartel said in its report.

On Tuesday, the price of West Texas Intermediate, the U.S. benchmark, finished above the price of Brent crude for the first time in five years. Analysts say the rising confidence in U.S. oil was partly boosted by the U.S. government’s last week decision to reverse a 40-year export ban on U.S. crude. See: 3 reasons U.S. oil is trading at premium to global benchmark.

“For WTI, we believe that the market has gone on a buying spree as they play on the widening spreads between WTI and Brent. The market would unlikely stop until WTI-Brent spreads widen toward 50 cents for the front month,” said Daniel Ang, a Phillip Futures energy analyst.

Hopes for higher prices

The prospect of U.S. shale producers expanding into new foreign markets as the country is flushed with excess oil has raised hopes for higher prices.

See also: U.S. gas prices fall below $ 2—and in some places under $ 1.60

However, the potential additional cost of transporting U.S. oil from midcontinent by rail to costal refineries has prompted some analysts to take a bearish view, saying it might be cheaper for foreign oil users to source oil from West Africa.

“None of the potential for exports can be realized if the numbers don’t work,” he added.

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Moreover, unless there is a significant cut in output, the chronic issue of supply outstripping demand will continue to weigh on global prices well into next year, especially with additional Iranian oil returning to the market in the coming months, analysts said.

January gasoline futures RBF6, +7.01%  rose 6.65 cents, or 5.7%, to end at $ 1.2414 a gallon. January natural gas NGF16, +5.30%  gained 9.5 cents, or 5%, to settle at $ 1.983 per million British thermal units.

Sara Sjolin contributed to this report.

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