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Oil Supplies Drop More Than Expected, Weekly API Data Show - Crude Futures Up 1.9%

Crude inventories declined 5.05 million barrels for the week ended Sept. 9, the American Petroleum Institute reported late Tuesday. Gasoline stockpiles rose 2.8 million barrels, the trade group reported, while distillates inventories rose 67,000.

The API report comes a day ahead of the more closely watched release from the Energy Department's Energy Information Administration; it's due out Wednesday at 10:30 a.m. ET. Analysts polled by Platts expected crude stocks to decline 2.9 million barrels, gasoline stocks to go down 400,000 barrels, and distillates stocks to go up 1 million barrels.

United States Oil Fund is off 0.2% at 34.78.

October crude futures are up $1.68 or 1.9% in electronic after-hours trading.

Equity gains prompted crude gains during regular trading today. Oil futures closed 2.3% higher at $90.21 a barrel, the best level in nearly six weeks.

Gains came despite a downgrade to demand expectations.

The International Energy Agency Tuesday cut its forecast for oil demand in 2011 and 2012, citing the deteriorating global economy. At the same time, the organization warned that it may take some time for oil prices to fall because of supply problems that are likely to persist despite the restart of oil production in Libya.

The IEA cut its oil demand estimate by 0.2 million barrels a day for 2011 and 0.4 million barrels a day for 2012, citing lower economic growth. However, the agency still forecasts oil demand to be marginally higher than current supply next year.

The IEA's view contrasts slightly with that of OPEC, which this week gave a more bearish outlook for prices, suggesting that some members could manage this risk by reducing production. The two groups largely agree on the weakening of oil demand, but OPEC expects Libya to return to full pre-war crude production twice as quickly as the IEA.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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