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Oil at 2016 Highs While U.S. Gasoline Increase Sparks Worry

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On Wednesday, crude futures surged to 2016 highs over $50 per barrel. This marked the third day of fear over militant sabotage of oil facilities in Nigeria. However, prices could be pressured as U.S. gasoline stocks soar along summer demand.

According to government data, analysts only expected a decline of 2.7 million barrels. But, U.S. crude stocks dropped by 3.2 million barrels. This is crude’s third successive week in decline.

Gasoline inventories increased by 1 million barrels. Distillates like diesel and heating oil saw a rise of 1.8 million barrels despite the prediction of a downturn.

Troy Vincent, crude oil analyst for ClipperData in New York, said that this activity shows gasoline demand will wane even more than anticipated or that the crude glut will be mirrored by a gasoline glut.

Brent crude stabilized up $1.07 at $52.51 per barrel. It also extended its highest gains in post-settlement trade since October reaching $52.60 per barrel by 2:55pm Central time.

U.S. crude futures increased to settle at $51.32 per barrel (an increase of 87 cents or 1.7 percent). The session high was $51.34, the largest since July.

Tyche Capital Advisors in New York specializes in spread trades in U.S. crude futures. A managing partner at Tyche, Tariq Zahir said, “The gasoline build was a big surprise, especially since the driving season is underway.”

The Tyche partner also said longer-dated oil was in contango (more expensive to the spot contract) because of rises in products such as gasoline and distillates. He finished, “This, in our opinion, should limit the gains in spot prices.”

Early on, oil rallied after the militant Niger Delta Avengers claimed to have bombed a Chevron oil well in Nigeria. They attacked after refusing peace talks with the government. Once Africa’s biggest crude producer, Nigeria is at a 20-year low in oil output due to attacks by militants.

Data presenting China’s May crude oil imports at six-year highs also reinforced prices.

The dollar’s fall to five-week lows heightened demand for dollar-denominated oil from foreign currency holders.

Crude futures almost doubled from 13-year lows including $27 for Brent and $26 for WTI this past winter.

Scott Shelton, broker at ICAP in North Carolina said, “The trend is your friend and picking tops can be painful as all of the money out there chasing trends from the systematic side of the market can overwhelm.”

Article written by HEI contributor Briana Steptoe.

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