Fading oil surplus prompts price gains

An oil well is pictured at sunrise in the Bakken oil fields near Sidney, Montana in this November 2014 handout photo. The Smithsonian Channel TV show “Boomtowners” tells the stories of some of the thousands of people who relocate to rural North Dakota for a fresh start in the oil boom, where roughly 1.2 million barrels of crude are extracted each day. REUTERS/Smithsonian Channel/Handout via Reuters ATTENTION EDITORS - NO SALES. NO ARCHIVES. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. IT IS DISTRIBUTED, EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE
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By Mark Shenk

(Bloomberg) — Oil remained higher after crude stockpiles fell more than expected last week. In that period, crude inventories dropped 2.67-million barrels as refineries bolstered operating rates, according to the Energy Information Administration (EIA). The global surplus will fade by the end of 2016, an official from Trafigura Beheer BV said.

Oil’s recovery from a six-year low in March has faltered near $60 a barrel amid speculation that rising prices will encourage production. The Organization of Petroleum Exporting Countries, led by Saudi Arabia, has resisted calls to reduce output, exacerbating a global oversupply.

“We’re expecting a strong refining season in the months ahead, which will further reduce crude supplies,” Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston, said by phone. West Texas Intermediate (WTI) for July delivery climbed 65 cents, or 1.1 percent, to $58.64 a barrel at 10:32 a.m. on the New York Mercantile Exchange.

Brent for July settlement rose 93 cents, or 1.5 percent, to $64.95 a barrel on the London-based ICE Futures Europe exchange.

US crude supplies slid to 482.2-million barrels in the week ending May 15, EIA data show a 1.75-million barrel decline was projected in a Bloomberg survey. Stockpiles remain near the highest level since 1930, based on monthly records dating back to 1920.

Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, fell 241,000 barrels to 60.44-million, the fourth straight drop.

Crude production decreased by 112,000 barrels a day to 9.262-million. US output has surged to the highest level in more than four decades as the combination of horizontal drilling and hydraulic fracturing (fracking) unlocked supplies from shale formations in the central part of the nation.

Refineries operated at 92.4 percent of their capacity, up from 91.2 percent the previous week.

The global surplus will disappear by the end of 2016, Jonathan Kollek, president of Trafigura Eurasia, said at a Platts conference in London on Wednesday. It’s more likely that prices will rise than fall, he said.

Oil traders are waiting for today’s release of Federal Reserve minutes that could offer clarity on when officials plan to raise interest rates. A surge in US housing starts last month bolstered the case for higher interest rates, spurring dollar gains on Tuesday. Minutes from the Fed’s April meeting are due in Washington.

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