Oil rebounds as US gasoline drop helps to ease post-Opec gloom

The encouraging sign for demand helped counter a smaller-than-expected decline in domestic crude stockpiles. (Bloomberg pic)

NEW YORK: Oil rebounded as a drop in US gasoline supplies helped crude prices shrug off their biggest decline in a month.

Futures gained 1.9% in New York after the Energy Information Administration said gasoline inventories shrank by 1.58 million barrels last week, about twice the drop suggested by an industry report a day earlier. The encouraging sign for demand helped counter a smaller-than-expected decline in domestic crude stockpiles.

Prices were still far from recouping their 4.8% fall on Tuesday, when concerns about the global economy overshadowed a decision from Opec and its allies to extend output cuts.

“Clearly, there is no getting away from economic bearishness and cooling demand fundamentals,” Stephen Brennock, an analyst at PVM Oil Associates Ltd., wrote in a report. “This morning, however, has provided a reprieve from the selling frenzy as those searching for a bullish catalyst pin their hopes on another drawdown in US oil inventories.”

West Texas Intermediate crude for August delivery climbed US$1.09 to US$57.34 a barrel at the close of regular trading on the New York Mercantile Exchange.

Brent for September settlement rose US$1.42, or 2.3%, to US$63.82 a barrel on the ICE Futures Europe Exchange after slumping 4.1% in the previous session. The global benchmark crude traded at a premium of US$6.38 to WTI for the same month.

A Bloomberg survey of analysts had forecast a decline in US crude stockpiles of about 3 million barrels, while an American Petroleum Institute report suggested it would be almost 5 million. But the gasoline drawdown was almost twice what API had found.

“We priced in even worse demand figures with the selloff yesterday,” said Phil Flynn, senior markets analyst at Price Futures Group in Chicago. “The reaction to the report today is a sign that we’ve priced in the bad news, and now we’ll start looking at some of the more bullish aspects of the market.”

Trading was light before the July Fourth holiday in the US, exacerbating any shift in sentiment, said Matt Sallee, a portfolio manager at Kansas-based Tortoise, which oversees about US$20 billion in assets.

The EIA report “didn’t say anything too convincing one way or another for prices,” he said. “Crude’s obviously a little fragile right now. You’ve gotten the decision out of Opec, but that was kind of a sell-the-news story.”