By Nicole Friedman
NEW YORK--The benchmark U.S. oil price jumped to its largest
one-day gain in nearly two months on Wednesday as traders seized on
a sign that U.S. crude production could be nearing a peak.
The rate of U.S. crude-oil output fell last week for the first
time since January, based on preliminary data, the U.S. Energy
Information Administration said Wednesday.
Oil for May delivery soared after the morning report, closing at
$50.09 a barrel on the New York Mercantile Exchange. That's up 5.2%
on the day, the biggest percentage and dollar gain since Feb.
3.
Brent, the global benchmark, rose $1.99, or 3.6%, to $57.10 a
barrel on ICE Futures Europe.
The decline could indicate that an oil glut, which sent prices
to a six-year low earlier this year, is easing, some traders and
analysts said.
Energy companies have announced billions of dollars of spending
cuts, and for months have pulled back on the number of rigs used
for drilling oil wells.
Investors, traders and analysts are closely watching for signs
that these cutbacks in investments are leading to a slowdown--or
even decline--in production, a process that usually takes months.
New technology and efficiency gains have allowed producers to boost
output by pumping more oil from existing wells, rather than
drilling new ones.
U.S. oil output slipped by 0.4%, or 36,000 barrels a day, last
week from multidecade highs the previous week, according to the
EIA.
"Perhaps this is the first sign of a leveling off of oil
production in the U.S.," said Andy Lipow, president of Lipow Oil
Associates in Houston.
After plummeting in 2014, oil prices stabilized this year amid
uncertainty about whether prices had hit bottom.
Ben Ross, co-portfolio manager for Cohen & Steers Inc.,
noted the drop but said he would wait to see a sustained decline in
U.S. output before wagering on prices rising.
"Everybody's producing as much as they can right now," from U.S.
firms to members of the Organization of the Petroleum Exporting
Countries, Mr. Ross said. "I can't put too much credence into one
weekly data point."
Mr. Ross, who helps oversee $443 million in commodity
investments, has less money invested in oil than is recommended by
the benchmark he tracks.
The weekly EIA data is often revised in monthly reports. In its
latest monthly report released this week, the EIA reported that
crude-oil production fell to 9.2 million barrels a day in January,
from 9.3 million barrels a day in December.
"The market may be getting the sense now that we are seeing the
effect of the decline in rig count and production figures," Mr.
Lipow said. "It certainly may be the beginning of a trend."
A weaker dollar also boosted oil prices. Oil is traded in
dollars and becomes cheaper for buyers using foreign currencies
when the dollar weakens.
In addition, negotiations over Iran's nuclear program appear to
have hit a roadblock, boosting the likelihood that sanctions
limiting Iranian crude exports would remain in place.
Oil-market participants are keeping a close watch on the
negotiations because a deal could lead to the lifting of
international sanctions on Iran, paving the way for more Iranian
crude to flood an already oversupplied global market.
Nuclear talks between Iran and six world powers missed the
deadline for a preliminary agreement Tuesday, and negotiations
stalled Wednesday. The deadline for a final nuclear deal to be
reached is June 30.
"This market had quickly anticipated a successful outcome of the
meetings," said Donald Morton, senior vice president at Herbert J.
Sims & Co., who oversees an energy-trading desk. Traders who
bet that a successful negotiation would push oil prices lower might
have closed out those bets because of the uncertainty, he said.
"Overrunning the deadline, I think, has got some people going from,
'We're going to have a successful outcome,' to more neutral."
Despite the drop in U.S. oil output and uncertainty about an
Iran deal, some traders pointed to overall oil supplies in storage
as a reason to remain bearish on oil. Crude-oil stockpiles rose for
a 12th straight week to 471.4 million barrels, a record in weekly
data, the U.S. Energy Information Administration said
Wednesday.
Investors have become concerned in recent months about the rapid
growth of U.S. crude-oil stockpiles, especially in Cushing, Okla.,
the delivery point for the benchmark Nymex contract. Cushing
supplies rose by 2.6 million last week to 58.9 million barrels, the
highest level on record, the EIA said.
If Cushing storage levels hit maximum capacity, that could weigh
on prices as sellers cut prices to attract buyers with space left
to store oil. The EIA said in September that Cushing's working
capacity is 70.8 million barrels.
"We will be flush with storage--or actually, lack of storage"
within weeks, said Harish Sundaresh, commodity strategist and
portfolio manager for Loomis, Sayles & Co., which manages about
$230 billion, at a media event Wednesday. "Storage operators can
actually charge a lot more to store a barrel." Mr. Sundaresh
expects oil prices to fall as sellers compete for buyers who are
facing higher storage costs.
Gasoline stockpiles fell by 4.3 million barrels to 229.1 million
barrels, the lowest level this year. Analysts had predicted on
average that inventories would fall by 900,000 barrels. Gasoline
futures settled up 3.5% at $1.8312 a gallon.
Distillate stocks, which include heating oil and diesel fuel,
rose by 1.3 million barrels. Analysts had expected a 300,000-barrel
weekly decrease.
Diesel futures rose 2.3% at $1.7469 a gallon.
Write to Nicole Friedman at nicole.friedman@wsj.com
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