Oil falls 1%, settling at $56.60, as rising US gasoline stockpiles offset falling crude stocks

Key Points
  • Britain's biggest pipeline is likely to be shut down for several weeks.
  • Brent had settled lower on Tuesday on profit-taking following a ramp up in prices on the closure of a key North Sea pipeline.
  • Industry data showed a larger-than-expected drawdown in U.S. crude stockpiles ahead of closely-watched government figures.
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

Oil prices dipped on Wednesday as a slump in U.S. crude stockpiles was offset by a larger-than-forecast rise in gasoline inventories and as U.S. crude output continued to grow to record highs.

Expectations for an extended shutdown of a major North Sea crude pipeline also continued to support markets.

U.S. West Texas Intermediate crude finished Wednesday's session down 54 cents, or 1 percent, at $56.60 a barrel, having settled the previous session down 85 cents.

Brent crude was down 92 cents, or 1.5 percent, at $62.42 a barrel by 2:29 p.m. ET (1929 GMT). It had settled down $1.35, or 2.1 percent, on Tuesday on a wave of profit-taking after news of a key North Sea pipeline shutdown helped send the global benchmark above $65 for the first time since mid-2015.

Crude inventories fell by 5.1 million barrels in the week to Dec. 15, compared with analysts' expectations for an decrease of 3.8 million barrels.

How the Forties Pipeline closure will affect oil markets

"The report is modestly supportive on the large crude oil inventory decline. That decline was offset mightily by the large increase in gasoline inventories," said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.

Gasoline stocks rose by 5.7 million barrels, compared with analysts' expectations in a Reuters poll for a 2.5 million-barrel gain. Distillate stockpiles, which include diesel and heating oil, fell by 1.4 million barrels, versus expectations for a 902,000-barrel increase, the EIA data showed.

Meanwhile, weekly U.S. crude production jumped by 73,000 barrels a day to 9.78 million barrels a day. American output is approaching the all-time high of roughly 10 million barrels reached in 1970.

The United States is also on its way to pumping as much as top producers Saudi Arabia and Russia, both of which are capping output as part of a deal among OPEC and other producers to drain a global glut of crude.

OPEC expects the world oil market to be balanced by late 2018 as its deal with other producers to cut output reduces excess oil in storage, even as the U.S. and other producers outside the group pump more crude.

Selling in the oil market had gained pace on Tuesday after the U.S. Energy Information Administration said in its monthly short-term energy outlook that U.S. crude oil output will rise by 780,000 barrels per day (bpd) to a record-high of 10.02 million bpd in 2018.

OPEC production decreases in November

Britain's biggest pipeline from its North Sea oil and gas fields is likely to be shut for several weeks for repairs. On Wednesday morning, its operator said it was still considering repair options and reiterated that any repairs would take several weeks.

The pipeline, which carries about 450,000 barrels per day (bpd) of Forties crude, was shut after cracks were found. It has particular significance to global markets because Forties is the largest out of the five crude oil streams that underpin the dated Brent benchmark.

A number of producers, including BP and Royal Dutch Shell, said they had closed down oil fields in response.

"The fact that the market sold off so much after the Forties outage shows that the market struggles to trend higher. Now, we're basically where we were a month ago," Olivier Jakob of Petromatrix consultancy said.

While the Forties shutdown has provided a price floor, early gains quickly evaporated in a global market that is still oversupplied and with output rising in the United States.

"The strength earlier this morning (on Brent) was mainly a reaction to U.S. API data. The fact that the market sold off so much after the Forties outage shows that the market struggles to trend higher. Now, we're basically where we were a month ago," Olivier Jakob of Petromatrix consultancy said.

— CNBC's Tom DiChristopher contributed to this report.