By Timothy Puko and Georgi Kantchev
Strong signs for demand helped oil bounce and sent gasoline
prices soaring Wednesday.
Demand for crude is increasing at its fastest pace in five
years, the International Energy Agency said in its closely watched
market report. The report helped calm fears of sluggish demand that
had pushed U.S. oil to its lowest settlement in six years on
Tuesday.
Gasoline stockpiles in the U.S. fell at a much faster rate than
expected last week, the U.S. Energy Information Administration
said. BP PLC is also taking down its largest unit at the Whiting,
Ind., refinery for about a month, tightening gasoline markets in
the Midwest, analysts and a broker say.
Light, sweet crude for September delivery gained 22 cents, or
0.5%, to settle at $43.30 a barrel on the New York Mercantile
Exchange. Brent crude, the global benchmark, gained 48 cents, or
1%, to $49.66 a barrel on ICE Futures Europe.
Gasoline futures settled up 6.98 cents, or 4.1%, at $1.7635 a
gallon. Prices hit their highest point for August after gains of
8.7% over three sessions. It is among gasoline's sharpest rallies
in months.
Gasoline stockpiles fell by 1.3 million barrels in the week
ended Aug. 7, EIA said in its weekly report on oil stockpiles.
Analysts had expected gasoline supplies to fall by 800,000, and the
larger-than-expected draw was the only bullish data in the highly
watched gauge of supply and demand.
It showed oil stockpiles shrank by 1.7 million barrels, 19% shy
of analysts' expectations for the week ended Aug. 7. Distillates,
which include diesel, added 3 million barrels, three times as much
as expected. Diesel futures settled up 2.4 cents, or 1.5%, to
$1.5869 a gallon.
EIA data also showed imports up 5.2% for the week at 7.6 million
barrels a day, despite U.S. production on pace for its highest
tally in more than 30 years. That shows a price-cutting war for
customers is still alive and well as exporters such as Saudi Arabia
are managing to sell crude into the U.S. despite its own high
production and a 60% fall in prices since last year, said Kyle
Cooper, managing director of research at IAF Advisors, a Houston
consulting firm.
"Crude supplies are very, very high," he added, noting that
refineries will soon begin maintenance and drain even less from
stockpiles. "So those levels are bound to start increasing in the
coming weeks."
Despite the short-term setback, the global oversupply of crude
may be significantly smaller than some worst-case scenarios
suggest, analysts said after reviewing the IEA report. That helped
reassure the market after China's plummeting currency had spread
fear that global demand won't catch up to rampant supply.
"Oil's plunge below $50 a barrel from triple digits a year ago
has seen demand react more swiftly than supply," the IEA said on
Wednesday.
The Paris-based agency said global oil demand would grow by 1.6
million barrels a day this year, an upward revision of 200,000
barrels a day from its previous forecast, and would keep rising by
1.4 million barrels a day next year.
The IEA's methodology also suggests the oversupply isn't as bad
as some worst-case scenarios suggest, analysts at both Tudor,
Pickering, Holt & Co. and Simmons & Co. International said.
Some of the stockpiled oil IEA adds to its calculations now is like
to shrink over time, analysts at Tudor, Pickering said in their
assessment of the report.
"Bottom Line: The market is oversupplied, but closer to" 500,000
barrels a day, not 2.5 million, they added.
EIA just a day ago released updated forecasts showing oversupply
at just more than 2 million barrels a day for 2015. The IEA did
warn that the oversupply is likely to persist as global production
"continues to grow at a breakneck pace."
Oil prices on Wednesday also found support in the weaker dollar.
The Wall Street Journal Dollar Index, which tracks the dollar
against a basket of other currencies, fell 0.7%. Oil is priced in
dollars and it becomes cheaper for holders of other currencies as
the dollar falls.
Many people who bet on oil's fall are also likely closing out
profitable bets, analysts said. That can bid up prices, a
phenomenon called short-covering.
"Not surprised" by the rebound, said Gene McGillian, an analyst
at Tradition Energy The "selloff has looked a bit overdone and
thinking this is really just light short covering going on."
Many, however, are expecting further selling in the days to
come. The IEA said that many in the industry see oil prices staying
lower for longer as "muscular pumping" from Saudi Arabia and Iraq,
the Organization of the Petroleum Exporting Countries' top
producers, is adding to the global glut. The oversupply is likely
to is through 2016, longer than many expected, it said.
"It will be difficult for Brent and (U.S.) crude prices to
sustain any significant, fundamentally driven rallies for the
balance of this year and potentially through" the first half of
2016, Vikas Dwivedi, global energy strategist at Macquarie Group
Ltd., said in a note.
Write to Timothy Puko at tim.puko@wsj.com and Georgi Kantchev at
georgi.kantchev@wsj.com
Access Investor Kit for "BP plc"
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0007980591
Access Investor Kit for "BP plc"
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0556221044
Subscribe to WSJ: http://online.wsj.com?mod=djnwires