Crude Oil In Rally Mode After Inventories Surprise

US Crude Oil Field Production data by YCharts

Futures in NY were little changed after jumping to a six-week high on Wednesday. Gasoline production averaged 9.9 million barrels in the week to March 16, with refineries operating at 91.7 percent of capacity and processing 16.8 million barrels of crude daily. It added to signs that production cuts by OPEC and Russian Federation are successfully clearing a global glut.

Oil prices were firm on Thursday, buoyed by a surprise decline in United States crude inventories as well as ongoing supply cuts led by Opec, although a relentless rise in USA oil output threatens to undermine efforts to tighten the market.

Experts are of the view that United States oil exports could grow to as much as four to five million barrels a day in the medium term, prompting questions on which markets will buy the additional oil.

"Refinery runs continue to exude strength".

Brent crude futures LCOc1 jumped $1.54, or 2.2 percent, to settle at $70.45 a barrel. Total volume traded Monday was about 39 percent below the 100-day average.

Brent for May settlement slipped $0.48 to $68.99/bbl on the London-based ICE Futures Europe exchange, and traded at a $4.14 premium to WTI. USA output also continued to grow, touching a record 10.4 million barrels a day last week.

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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 least since December. US drillers added four oil rigs in the week to March 16, bringing the total count to 800, the weekly Baker Hughes drilling report said on Friday.

Whether the decline in American inventories can reassure OPEC is uncertain. One of the options is looking at the past seven years of inventories in OECD countries, instead of five years. By that measure, just looking at the U.S. part of it, inventories have about 28 million barrels to go.

Trump could withdraw the USA from the historic nuclear deal with Iran, and impose sanctions on the country, which then would make it harder for Tehran to export crude and oil products to the global market. The decline comes as OPEC saw record compliance with production-cut targets in February as the group continues efforts to drain a global glut.

Some support for crude futures came from currency markets, where the dollar fell as Federal Reserve officials stuck to their view of three rate increases for 2018, even as they delivered an expected quarter point rate hike.

"There are a number of bullish things to hang the hat of the rally on this week; be it the inventory report. or the tariff news, or the heightened tensions between Saudi and Iran", said Matt Smith, director of commodity research at Clipper Data in Louisville, Kentucky.

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