Oil up 3 percent on big U.S. gasoline draw; WTI back above $40

Wed Aug 3, 2016 3:26pm EDT
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By Barani Krishnan

NEW YORK (Reuters) - Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer.

U.S. crude inventories rose for a second week in a row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, Energy Information Administration (EIA) data showed.

Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. The large draw assuaged some market participants' worry of a gasoline glut amid the peak U.S. summer driving season.

U.S. West Texas Intermediate (WTI) crude CLc1 settled up $1.32, or 3.3 percent, at $40.83 a barrel. On Tuesday, it settled below $40 a barrel for the first time since April.

Brent crude LCOc1 rose $1.30, or 3.1 percent, to settle at $43.10. It hit a more than three-month low of $41.51 the previous day.

"We are not surprised to see spot prices rebounding on the gasoline draw," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York. "But I think this will be short-lived."

"The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up."

Oil rallied from 12-year lows of $26-$27 in the first quarter to almost $53 in June, boosted initially by expectations, later dashed, that OPEC would freeze output and later by supply outages.   Continued...

Rig supervisor David Crow shows off the oil rig he manages foreElevation Resources at the Permian Basin drilling site in Andrews County, Texas, U.S.  in this photo taken May 16, 2016. REUTERS/Ann Saphir