Oil prices rebound from two-month low

London (July 8)  Crude oil prices rose slightly on Friday, rebounding from a strong selloff overnight after U.S. crude inventories showed a smaller draw than expected.

Sentiment in the oil market, however, remained wobbly as investors and traders worry that the rate of supply decline is slowing — a factor that has prevented prices from crossing the $50 threshold for some time.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in August CLQ6, +1.00%  rose 15 cents, or 0.3%, to $45.29 a barrel. September Brent crude LCOU6, +0.99%  on London’s ICE Futures exchange rose 18 cents, or 0.4%, to $46.58 a barrel. For the week to date, both contracts were down around 7.5%.

The gains come after a lackluster session on Thursday, when crude ended down 4.8% and Brent lost 4.9% to settle at two-month lows after a smaller-than-expected weekly decline in U.S. oil inventories. According to the Energy Information Administration, U.S. crude stockpiles for the week ended July 1 fell by 2.22 million barrels, much smaller than a 6.7-million barrel draw tipped by industry organization American Petroleum Group.

“We expect total U.S. crude stock draws of around 9 million barrels across July, although there is potentially some downside risk to this figure given that the recent collapse in global margins has begun to bite in the U.S. too,” said Energy Aspects, a London-based consultancy.

The pace of crude inventory decline is likely to abate further from September onward as autumn maintenance begins, the firm noted.

Adding to the worries is the ample supply of gasoline still sloshing around in the world, despite a growth in passenger vehicle sales and seasonal high demand amid the U.S. summer driving season.

In the U.S., gasoline stocks also saw a smaller decline last week than anticipated, fueling concerns of an overhang.

Robust gasoline supplies are making it less profitable for refiners to produce more gasoline, and refinery utilization unexpectedly fell last week. If refiners continue to run at lower rates and buy less crude oil, that could worsen the oversupply of crude, analysts say.

“Bearish price signals will depress supply in the second half of this year, but this will be in part offset by a large inventory overhang and softening consumption in the fourth quarter,” BMI Research said.

The U.S. isn’t alone in dealing with a glut of gasoline. According to Chinese energy research firm ICIS, the country’s gasoline production in the third quarter will likely grow by 1.7% on quarter, with the bulk of the contribution coming from independent refiners, known as “teapots.”

The overhang will prompt China to increase its exports of gasoline, which to could reach up to 8 million metric tons or around 160,000 barrels a day, up 40% on year, the firm said.

In the first five months, China’s gasoline exports grew 64% to 3.3 million tons. China will release June oil data on Wednesday.

Market participants will now be watching U.S. June nonfarm payrolls data to be released Friday at 8:30 a.m. Eastern Time.

Read: What you need to know about the June jobs report

Nymex reformulated gasoline blendstock for August RBQ6, +0.43%  — the benchmark gasoline contract — slipped 0.1% to $1.36 a gallon, while ICE gasoil for July changed hands at $409.50 a metric ton, down $8.50 from Thursday’s settlement.

Source: MarketWatch