By David Gaffen
NEW YORK (Reuters) - Crude oil prices rose on Wednesday after the International Energy Agency (IEA) said a global surplus of crude was starting to shrink, even though U.S. data showed another big increase in inventories due to the ongoing effects of Hurricane Harvey.
U.S. gasoline prices, however, fell despite a record drawdown in inventories of the motor fuel. Analysts anticipate refineries will come back online after Harvey shut nearly a quarter of the nation's refining capacity while demand slips due to the effects on the high-consuming states of Florida and Georgia following Hurricane Irma.
The U.S. Energy Information Administration's (EIA) data showed a build of 5.9 million barrels of crude last week, exceeding expectations for a 3.2 million-barrel hike. [EIA/S]
Much of that was because of a near 10 million-barrel increase in stocks in the U.S. Gulf region and as crude production rebounded from a brief Harvey interruption.
U.S. crude futures (CLc1) added to gains late in the session, boosted by expectations of a steady rebound in refining capacity. U.S. crude was up $1.04, or 2.2 percent, to $49.27 per barrel and Brent crude (LCOc1) was up 84 cents to $55.11 a barrel by 2:04 p.m. ET (1804 GMT).
“A sharp rebound in U.S. oil production compared with last week has limited gains in crude prices as concerns grow that oil output is recovering faster than refining capacity coming online," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
U.S. crude production rebounded to an average of 9.4 million barrels per day last week from 8.8 million bpd a week earlier, entirely the result of increases in the lower 48 states.
U.S. gasoline stocks (USOILG=ECI) slumped 8.4 million barrels, the largest one-week decline since the EIA started recording the data in 1990, while distillate stocks fell 3.2 million barrels.
U.S. gasoline futures (RBc1) dipped after the data, and were down 0.4 percent at $1.6511 a gallon.
Andrew Lipow of Lipow Oil Associates in Houston said the fall in prices was a "counterintuitive" reaction.
"The market is reacting in anticipation of refineries restarting at the same time expecting a decline in demand due to the after effects of Hurricanes Harvey and Irma," he said.
The Paris-based IEA, in its monthly report, noted that the U.S.' reliance on the Gulf Coast makes it vulnerable to similar events like Harvey, saying "normal operations are too important to fail."
It recommended that the U.S. strengthens its energy security to address events, such as hurricanes, by potentially adding oil products to government-held inventories.
Overall, the IEA said that robust global demand and an output drop from the Organisation of the Petroleum Exporting Countries and other producers should help balance inventories.
The assessment echoed a report by OPEC forecasting higher demand for its oil in 2018 and pointing to signs of a tighter global market.
Analysts at Drillinginfo.com noted that for oil to rally and hold those gains, the IEA's demand projections have to pan out, along with the ongoing supply cuts, to help inventories fall.
"Without inventory normalization, there can be no sustained price recovery," they wrote.
OPEC agreed with non-member nations last year to cut supply by 1.8 million bpd through March 2018, and major nations are seeking to extend that agreement further.
The U.S. EIA on Tuesday revised its 2017 and 2018 U.S. oil output forecasts lower to reflect, in part, the effects of Harvey.
(Additional reporting by Scott DiSavino in New York, Fanny Potkin in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and Louise Heavens)