Futures Movers: Oil prices climb though U.S. crude supplies rise a 4th week, but product stocks decline

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Oil futures traded higher Wednesday, holding onto the bulk of earlier gains on the back of optimism over U.S.-China trade negotiations, as the U.S. government reported a fall in petroleum product stocks, as well as a fourth straight rise in crude supplies.

A news report said Beijing was open to a limited trade deal, but analysts noted that sentiment around the negotiations, with high-level talks set to resume in Washington on Thursday, has tended to swing sharply between optimism and negativity. Meanwhile, traders are also paying attention to potential supply disruptions in Ecuador and continued worries over global growth prospects.

West Texas Intermediate crude for November delivery CLX19, +0.78%  on the New York Mercantile Exchange rose 48 cents, or 0.9%, to $53.11 a barrel on the New York Mercantile Exchange. December Brent crude BRNZ19, +0.64% was up 40 cents, or 0.7%, at $58.64 a barrel on ICE Futures Europe.

The Energy Information Administration on Wednesday reported that U.S. crude supplies climbed for a fourth week in a row, by 2.9 million barrels for the week ended Oct. 4. They were forecast to increase by 2.4 million barrels, according to analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a rise of 4.1 million barrels, according to sources.

“A drop in refining activity to the lowest level since mid-February has yielded a build to oil inventories, despite lowly net imports,” said Matt Smith, director of commodity research at ClipperData. “We are in the depths of fall maintenance, but both strong exports and weak imports have helped limit the build.”

The EIA data showed supply declines of 1.2 million barrels for gasoline and 3.9 million barrels for distillates. The S&P Global Platts survey revealed expectations for supply declines of 1.2 million barrels for gasoline and 2.5 million barrels for distillates.

“The market took notice of a modest build in crude supplies, but the crude inventory build was more than offset by a significantly greater draw of products, such that the overall inventory declined by 8.3 million barrels,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch. “This sign of tightening overall inventory is supporting the oil price.”

Read: EIA cuts global oil demand expectations, lowers oil-price forecasts

On Nymex, November gasoline RBX19, +0.53%  rose 0.7% to $1.5913 a gallon, while November heating oil HOX19, +0.68%  was up 0.7% at $1.9231 a gallon.

“Other than inventory, the market is also interested in the level of U.S. crude oil production, which at 12.6 million barrels a day, has grown to the highest level of all time,” said Raj. “The rising U.S. production is keeping [a lid] on the prices, which would otherwise be seeking a higher level.”

Rounding out action in the energy markets, November natural gas NGX19, -0.70%  shed 0.7% to $2.272 per million British thermal units. Analysts polled by S&P Global Platts, on average, expect the EIA on Thursday to report a weekly rise of 97 billion cubic feet in U.S natural-gas supplies in storage.

Read: EIA expects U.S. winter heating bills to be lower than last year’s

Meanwhile, U.S. benchmark stock indexes climbed Wednesday , feeding risk-on sentiment that aided oil’s rise, after Bloomberg News reported that China was open to a limited resolution, while the Financial Times reported that China has offered to boost purchases of U.S. agricultural products. U.S. equities were pressured late Tuesday after the U.S. announced visa restrictions on Chinese government and Communist Party officials believed to be involved in the abuse of Muslim minority groups in Xinjiang, China.

“If the talks fail, the oil price risks suffering a renewed price slide because concerns about [energy] demand would then increase considerably again, especially looking ahead to the coming year,” said Carsten Fritsch, analyst at Commerzbank, in a note.

The trade talks continue against a backdrop of concern over the global economic outlook and prospects for growth in crude oil demand.

Threats to production in Ecuador from mounting unrest were also helping to underpin oil, analysts said. Ecuador’s government fled the capital city of Quito on Tuesday in response to protests following President Lenin Moreno’s decision to end subsidies, leading to a sharp rise in fuel prices. Protesters seized some oil installations and Petroecuador, the state oil company, has warned that losses could reach 165,000 barrels a day — nearly a third of production, if unrest continues.

Ecuador announced earlier this month that it will leave the Organization of the Petroleum Exporting Countries on Jan. 1, 2020 as its government seeks ways to boost revenue.