Oil Up After Gasoline Stock Draw, but Market Bloated

Oil prices held onto gains on Thursday with U.S. prices rising on evidence that gasoline demand could strengthen in the world's biggest oil market, although bloated crude supplies meant that fuel markets remain under pressure.

Benchmark Brent crude settled up 51 cents at $55.63 per barrel. U.S. light crude settled 66 cents higher at $53 a barrel.

"I think the market is frozen," said Dominick Chirichella, senior partner at the Energy Management Institute.

He said that while the U.S. gasoline stock draw was interesting, it was insufficient to knock the market out of its range-bound trade, limited between production cuts from OPEC and brimming U.S. crude stockpiles.

"If we continue to see a decent compliance level in the 85 to 95 percent range from OPEC, and we do see inventories cleaning up in the U.S., we may get another leg up," Chirichella said.

The discount for March futures relative to April <CLc1-CLc2> narrowed to 47 cents a barrel on Thursday, the strongest level since October, as traders eyed growing exports and early concerns of a pipeline outage drove the market higher.

Enbridge Inc's Flanagan South pipeline, which runs from Flanagan, Illinois, to Cushing, Oklahoma, shut Wednesday, stoking concerns of a larger outage. The pipeline, which has nameplate capacity of 600,000 barrels per day (bpd), was ramping back up around 350,000 bpd, sources said, citing energy monitoring service Genscape.

The U.S. Energy Information Administration (EIA) said on Wednesday gasoline inventories fell by 869,000 barrels last week to 256.2 million barrels, versus analyst expectations for a 1.1 million-barrel gain.

The fall in gasoline stocks suggested U.S. consumption was stronger than expected, and may be healthy enough to support prices at time when most fuel oil markets are very well stocked.

"U.S. gasoline draws are supporting prices today," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates. "They are an indication of stronger U.S. demand."

The EIA report also said U.S. commercial crude inventories rose by 13.8 million barrels to 508.6 million barrels, well above analysts' forecasts.

U.S. bank Goldman Sachs said high fuel inventories and rising U.S. crude production meant oil markets would be over-supplied for some time, but that they would drain gradually.

"We do not view the recent excess U.S. builds as derailing our forecast for a gradual draw in inventories, with in fact the rest of the world already showing signs of tightness," the bank said in a note to clients.

High oil inventories have been undermining efforts by the Organization of the Petroleum Exporting Countries and other producers including Russia to tighten the market by cutting production.