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Oil Gains Most in Two Weeks as Storage in Key Hub Seen Shrinking

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(Bloomberg) -- Crude rose the most in two weeks as stockpiles at the largest U.S. storage hub are seen draining further.

Futures gained 2.2 percent Monday after data-provider Genscape Inc. was said to report that inventories dropped in Cushing, Oklahoma, according to two people with knowledge of the report. Tanks there are already at the lowest level since 2014, following 10 straight weeks of decline. Signals that the American economy is booming are also supporting crude prices.

Draws at Cushing will continue, said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York, as long as near-term futures contracts trade higher than later ones, a market structure known as backwardation that discourages storage. “Why would anybody want to auto-lose money by storing crude oil?” Yawger said.

U.S. service industries expanded in February near the fastest pace in at least a decade, signaling the economy is on track for steady growth this quarter, according to a survey from the Institute for Supply Management on Monday.

The U.S. benchmark crude has traded mostly above $61 in past weeks as the Organization of Petroleum Exporting Countries works to cut output as part of their supply agreement. The International Energy Agency said that closer to 2023, global markets will start to tighten and warned that more investment is needed to meet growth in consumption and to make up for production lost to natural declines.

Crude inventories in Cushing decreased 600,000 barrels last week, according to a forecast compiled by Bloomberg.

“The trend in global inventories shows that the market is fundamentally under-supplied and that emphatically remains the case,” Pavel Molchanov, an energy research analyst at Raymond James in Houston, said by telephone. The drawdown in inventories should continue through to near the end of this year, he said.

See also: Oil storage free fall helps hedge funds stay positive in rout

West Texas Intermediate for April delivery advanced $1.32 to settle at $62.57 a barrel on the New York Mercantile Exchange. Total volume traded Monday was about 18 percent below the 100-day average.

Brent for May settlement rose $1.17 to end the session at $65.54 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark traded at a $3.15 premium to May WTI.

Yet, concern that U.S. crude output, already at a record, will continue to climb has capped any significant rallies. The nation will dominate global oil markets for years to come, satisfying 80 percent of global demand growth to 2020, the IEA also said in its report on Monday.

For a story on the IEA’s outlook for U.S. energy dominance, click here

And according to consultants Wood Mackenzie Ltd., U.S. crude exports will jump to near 4 million barrels a day by the mid-2020s, rivaling shipments from Iraq and Canada.

In the U.S., “this spike in exports over the past several months now has definitely impacted the efforts of OPEC and non-OPEC to raise prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund.

Other oil-market news:

  • Libya’s Sharara oil field, the country’s biggest, is said to begin pumping after the reopening of a pipeline to the Zawiya refinery.
  • Gasoline futures climbed 1.8 percent to settle at $1.9349 a gallon on Monday.
  • CERAWeek by IHS Markit, the largest gathering of energy executives and officials in the Americas, began on Monday, with OPEC Secretary-General Mohammad Barkindo scheduled to dine with shale executives in Houston.
  • U.S. crude stockpiles rose 2.5 million barrels, according to the median estimate of analysts surveyed by Bloomberg.

©2018 Bloomberg L.P.

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