Oil prices rose Wednesday morning likely from a slate of supply threats, but are paring those gains after data showed U.S. stockpiles grew more than expected.
The U.S. Energy Information Administration said Wednesday that crude stockpiles grew by 2.8 million barrels last week, more than double what analysts and an industry group had estimated. Gasoline stockpiles also showed an unexpected addition of 536,000 barrels. Those additions boosted total crude and product stockpiles to a new record high of 1.37 billion barrels, EIA said.
Prices started falling immediately after the data's release, though they are still hanging on to gains for the day. Light, sweet crude for June delivery recently traded up 50 cents, or 1.1%, to $44.15 a barrel on the New York Mercantile Exchange, down from gains that had reached nearly 3% earlier in the morning. Brent, the global benchmark, recently traded up 24 cents, or 0.5%, to $45.21 a barrel on ICE Futures Europe, down from earlier gains of about 2%.
Oil prices have jumped by more than 60% since their lows earlier this year as traders speculate a nearly two-year downturn in prices is leading to slowing production and a more balanced market. Many think that trend is still propping up oil because of a series of threats to supply across the world.
Wildfires have led to evacuation orders in northern Alberta, forcing oil-sands companies to shut down or slow operations. Dry weather in Venezuela could reduce its ability to make hydroelectricity, forcing it keep more of its oil to burn for power, said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC. The semiofficial Fars news agency in Iran is also reporting threats from the country's military to block some vessels from the Strait of Hormuz, the narrow passage through which about a third of the world's seaborne oil shipments pass.
But if those factors can't keep lifting the market, the rally faces a big risk, Mr. Navy said. Several analysts have said the rally has gone too far too fast, warning a retreat is likely coming soon. Some had thought that retreat might already be under way after two straight losing sessions to start the week.
"It's important to sustain this rally," Mr. Navy said. "If you cannot sustain it, it will add more fuel to say it should go further down."
Gasoline has already flipped to losses, recently trading down 0.6% at $1.5003 a gallon, The market has been partly reliant on record-setting demand from U.S. drivers to drain away a glut of oil, and the unexpected addition to gasoline stockpiles raises questions about whether drivers will keep burning it up as prices rise, said Tariq Zahir, who oversees $6 million as managing member of Tyche Capital Advisors LLC.
"The fact the demand hasn't come back as quickly as expected (definitely) can be a...pressure on spot crude," he said. "Too much oil."
Stockpiles of distillates, including diesel fuel and heating oil, did shrink by 1.3 million barrels while analysts expected them to remain unchanged. Diesel futures recently traded up 0.6% at $1.3408 a gallon.