Crude oil is displayed inside a bottle. (Photographer: Daniel Acker/Bloomberg)

Oil Pares Rally Amid Signals of Expanding American Crude Surplus

(Bloomberg) -- Crude’s rally waned amid signs of further swelling stockpiles at the most important U.S. storage complex.

Futures closed 0.3 percent higher in New York on Thursday, wiping away most of the gains made during the session. Data provider Genscape Inc. was said to report inventories at the key pipeline hub in Cushing, Oklahoma, expanded, taking the wind out of a rally earlier driven by an unexpected Arab Light crude price increase by Saudi Arabia, the world’s biggest oil exporter.

The Saudi oil price increase means “they must be feeling pretty confident about the demand situation, but the Cushing build did offset some of that enthusiasm,” said Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago. “Cushing has built pretty sizeably the last couple of weeks.”

Oil Pares Rally Amid Signals of Expanding American Crude Surplus

The Saudi price markups suggest OPEC’s dominant producer has no plans to wind down production caps that rescued the global crude market from the worst downturn in a generation.

“The general feeling was that they were going to lower prices,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “A lot of people were looking at it like, if you were going to lower the pricing mechanisms, then maybe that would be indicative of them possibly loosening the production-cut regime.”

West Texas Intermediate for May delivery rose 17 cents to settle at $63.54 a barrel, the highest in a week, on the New York Mercantile Exchange.

The contract briefly traded lower than the June one, before closing at the same level. When discounts for near-term deliveries take hold, a situation known as contango, that signals a supply glut as many buyers prefer to postpone purchases than incur insurance and storage costs for crude they don’t need right away.

Arab Light Pricing

Brent for June settlement advanced 31 cents to end the session at $68.33 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $4.79 premium to June WTI.

The state-run Saudi Arabian Oil Co., or Saudi Aramco as it’s better known, raised its official selling price for its key Arab Light crude in Asia by 10 cents a barrel, lifting the differential to $1.20 a barrel above a Middle East benchmark for May loadings, according to an emailed price list on Thursday. Refiners and traders had anticipated a 60-cent-a barrel decrease, according to a survey last week.

In the U.S., an Energy Information Administration report released Wednesday showed storage tanks at Cushing added the most barrels since December 2016, while crude production jumped to a record 10.46 million barrels a day. At the same time, total U.S. crude stockpiles declined.

Oil prices have also seesawed with equity markets amid brewing concerns about a trade war between the U.S. and China that would clip economic growth and energy demand. On Thursday, the S&P 500 Index climbed as investors grew more confident the administration’s protectionist rhetoric wouldn’t result in equally stringent policy.

“Regardless of what’s happening on the fundamental-side of the complex, oil is still highly influenced by equities,” Kyle Cooper, director of research at IAF Advisors in Houston, said. “Depending on what the next trade tariff talk is between the U.S. and China, and how that affects equities, will be more of a driver.”

Oil-market news:

  • Gasoline futures rose 0.2 percent to settle at $1.9816 a gallon.
  • Oil is going to outperform other assets classes, independent of whether the stock market is up or down, due to “where we are in the growth cycle and commodity cycle,” Jonathan Goldberg, chief investment officer of BBL Commodities, said in a Bloomberg Television interview.
  • Analysts and traders are bullish on WTI crude futures, according to a Bloomberg survey.

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