Oil prices cruise higher on a drawdown in U.S. crude stocks

London (July 21)  Oil prices extended gains on Thursday, thanks to the continuous drawdown in U.S. crude stocks, but the increase in gasoline stocks is keeping prices under pressure.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September CLQ6, +0.45%  traded at $45.88 a barrel, up 0.3%. September Brent crude LCOU6, -0.45%  London’s ICE Futures exchange rose 0.2% to $47.27 a barrel.

Prices got a boost after the U.S. Energy Information Administration data released Wednesday showed the country’s crude stockpiles contracted by 2.3 million barrels in the week ended July 15, marking the ninth straight week of reduction. However, at 519.5 million barrels, U.S. crude inventories are still at historically high levels for this time of the year, said the agency.

The data also showed gasoline stocks grew by 900,000 barrels last week and "are well above the upper limit of the average range," the report noted.

"The relatively decent performance is possibly due to the crude draw and also encouraging demand data," brokerage PVM said, noting U.S. oil demand climbed back over 20 million barrels a day last week.

Given the rising gasoline stocks, however, the overall picture is still considered bearish.

"The continued gasoline builds have led some to speculate that this will lead to builds in crude as refineries cut back on production," said Stuart Ive, a client manager at the New Zealand-based OM Financial.

The U.S. isn't the only one dealing with a surplus of gasoline. Analysts predict China's gasoline production will outpace its demand this year, despite robust passenger vehicle sales.

"For refiners, it will mean smaller margins. But China's imports of crude will not see a sharp fall because the fundamental demand is still there," said Gao Jian, an energy analyst at the Shandong-based SCI International.

Many Chinese refiners, in particular the independent ones known as teapots, are casting a wider retail network by expanding their sales channels to the rural areas, a demographic left largely untapped by the state-owned behemoths like Sinopec, said a Beijing PetroChina trader.

Refiners are also pushing their extra barrels of gasoline out to the export markets, mainly to Singapore which is the main commodities trading hub in Asia.

But a bearish factor for China's crude imports that could arise in the next few months is that many refineries in China are expected to pause production for annual maintenance. This could slow down China's crude buying but also help alleviate the gasoline surplus.

Nymex reformulated gasoline blendstock for August RBQ6, +0.34%  — the benchmark gasoline contract — rose 1.1% to $1.38 a gallon, while ICE gasoil for the same month changed hands at $412.50 a metric ton, down 25 cents from Wednesday’s settlement.

Source: Reuters