US crude climbs 16 cents to 3-week high, settling at $52.04, as geopolitical tension provides support

Key Points
  • U.S. weekly crude stocks fell 5.7 million barrels, according to EIA.
  • Kirkuk-Ceyhan pipeline oil flow falls to 190,000 barrels per days, Platts reported.
  • Golden Cross" technical pattern looms in WTI contract.
An oil pump jack in Gonzales, Texas.
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Brent crude oil prices retreated from three-week highs on Wednesday, after a surprising drop in U.S. refining rates and an unexpected gasoline and diesel stock build signaled lower demand in the world's top oil consumer.

Brent crude futures, the international benchmark for oil prices, were up 20 cents at $58.08 at 2:15 p.m. ET (1615 GMT), down from a high of $58.54 earlier in the session.

U.S. West Texas Intermediate (WTI) crude futures ended Wednesday's session 16 cents higher at a three-week high of $52.04 per barrel. It earlier touched an intraday high of $52.33.

Weekly U.S. crude inventories fell by 5.7 million barrels, the Energy Information Administration said, exceeding expectations.

U.S. refiners throttled down activity as the autumn maintenance season got underway, and refining rates fell 4.7 percentage points to 84.5 percent of total capacity, the seasonally slowest rate of output since 2011.

Iraq troops take control of oil fields in Kirkuk
Iraq troops take control of oil fields in Kirkuk

Inventories of gasoline and diesel rose, the latter unexpectedly, reviving some concerns about elevated stockpiles during a time when demand for petroleum products declines.

The dropoff of 4.7 percentage points took refining output to 84.5 percent of capacity, representing the seasonally slowest rate of output since 2011.

"A setback in refinery utilization rates occurred as refiners undergo seasonal maintenance," said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota. "Builds in refined products and a setback in refined product demand provides weight to the energy complex."

The EIA data also showed drop of nearly 1.1 million barrels a day in U.S. production from the lower 48 States, putting total output at 7.9 million barrels a day.

The decline was due to the impacts Hurricane Nate, which briefly shut down about 92 percent of U.S. Gulf of Mexico production. Oil companies quickly restored the supply, but the impact on weekly figures, which are later revised, was still larger-than-expected, said John Kilduff, founding partner at energy hedge fund Again Capital.

"That was a much bigger number than any of us were looking for," he told CNBC. "Ninety percent of production was offline, so it added up."

U.S. crude exports rose last week to nearly 1.8 million barrels per day. That confirmed analysts' expectations for continued strength in U.S. shipments after EIA reported two weeks ago that exports hit a record 1.98 million barrels a day.

The market has been buoyant of late due to developments in the Middle East, where tensions in northern Iraq threatened to disrupt oil flows through a key pipeline from Iraq to Turkey.

Leadership on Kirkuk oil field not clear: S&P Global Platts
Leadership on Kirkuk oil field not clear: S&P Global Platts

Crude flows through the 600,000 barrel-per-day (bpd) Kurdish pipeline to the Turkish port of Ceyhan have dropped off sharply to around 190,000 bpd, a shipping source told Platts.

"It remains to be seen whether the Kurds, after withdrawing from the region they claim to be entitled to, will allow crude oil to be transported by pipeline across their territory to the Turkish Mediterranean port of Ceyhan," said analysts at Commerzbank.

The Iraq crisis adds to a looming dispute between the United States and Iran. Last Friday U.S. President Donald Trump refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide further action against Tehran.

More than one month ahead of OPEC's next official meeting, sources told Reuters its members were leaning toward extending an oil supply cut deal struck with Russia and other producers for a further nine months.

Three OPEC sources said keeping the curbs in place until the end of 2018 was a likely outcome, while a fourth said an extension of six to nine months would be needed to remove all excess oil in storage.

— CNBC's Tom DiChristopher contributed to this report.