Oil ends lower as EIA reports first U.S. crude supply build in 3 weeks

A worker checks the valve of an oil pipe at the Lukoil company owned Imilorskoye oil field outside the West Siberian city of Kogalym, Russia, January 25, 2016. REUTERS/Sergei Karpukhin

Oil finished lower on Wednesday after a U.S. government report revealed a weekly increase in domestic crude supplies, defying market expectations for a third straight weekly decline.

Futures prices, however, made only modest moves as investors continued to weigh signs of reduced global supplies on the back of efforts by major oil producers to curb production, the potential threat power outages in Venezuela pose the country’s output, and worries about slowing economic growth that could sap oil demand.

West Texas Intermediate crude for May delivery CLK9, -0.52%  on the New York Mercantile Exchange fell 53 cents, or 0.9%, to settle at $59.41 a barrel. May Brent crude LCOK9, -0.40% which expires at Friday’s settlement, lost 14 cents, or 0.2%, to $67.83 a barrel on ICE Futures Group.

The Energy Information Administration on Wednesday reported that U.S. crude supplies unexpectedly rose by 2.8 million barrels for the week ended March 22. Analysts polled by S&P Global Platts expected a fall of 2.2 million barrels, following two straight weeks of declines. The American Petroleum Institute on Tuesday had reported an increase of 1.9 million barrels.

“A surprise drop in refining activity has translated into an unexpected build to crude inventories,” said Matt Smith, director of commodity research at ClipperData. “Lower net imports remain a consistent theme, but the drop in refining activity back below 16 million barrels per day has been enough to buoy [crude] stocks.”

However, “offsetting the surprise build has been a draw to both gasoline and distillates,” he said.

Supplies of gasoline fell by 2.9 million barrels, while distillates declined by 2.1 million barrels last week, according to the EIA. The S&P Global Platts survey had shown expectations for supply declines of 3.6 million barrels for gasoline and 800,000 barrels for distillates.

On Nymex, April gasoline RBJ9, -0.86%  settled at $1.896 a gallon, down 3.1%, while April heating oil HOJ9, -0.21%  shed 0.5% to $1.981 a gallon. The April contracts expire Friday.

April natural gas NGJ19, -1.79% which expired at the day’s settlement, lost 1% to end at $2.713 per million British thermal units. The new front-month contract, May natural gas NGK19, +0.29% fell 1.2% to $2.719.

Meanwhile, worries surrounding “another power outage in Venezuela should start to raise concerns about a total shutdown of Venezuelan oil output,” said Phil Flynn, senior market analyst at Price Futures Group.

“The Venezuelan situation is getting more dire and even Russian planes and troops won’t help the situation if they can’t keep the power on,” he said. “Even though Venezuela exports to the U.S. are already at zero, the continuing loss of heavy crude is going to take its toll on U.S. distillate products.”

Efforts by the Organization of the Petroleum Exporting Countries to reduce output and U.S. sanctions on Venezuela and Iran have provided some support for prices, which have climbed by more than 25% year to date. Members of OPEC and other major oil producers, including Russia, have pledged to curb crude production by around 1.2 million barrels a day from October levels for the first half of this year to prop up markets.

Still, U.S. futures prices have chopped around on the back of persistent worries about an economic slowdown hurting energy demand. A recent slump in Treasury yields — and an inversion of the yield curve — underlined those economic worries.

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