Oil drops on Inventory
U.S. crude inventories fell by 900,000 barrels in the week ended June 17, the Energy Information Administration said Wednesday morning. Analysts surveyed by The Wall Street Journal had expected the agency to report that U.S. crude inventories fell by 1.6 million barrels. The American Petroleum Institute, an industry group, said late Tuesday that its own data for the same week showed that U.S. crude stockpiles fell by 5.2 million barrels.
Oil prices turned negative after the report.
"The disappointment on the lack of a sizable draw in crude stocks has taken some wind out of the market's sails," said Gene McGillian, analyst at Tradition Energy.
U.S. oil for August delivery settled down 72 cents, or 1.4%, at $49.13 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 74 cents, or 1.5%, to $49.88 a barrel on ICE Futures Europe.
Oil prices have rallied sharply in recent months on expectations of declining supplies and unexpected production outages around the world.
Some analysts warn that the rally could end, especially after the busy summer-driving season, as the global crude market remains oversupplied.
Current inventories stand at "still very high levels and offset the benefits to oil prices coming from demand," said Richard Hastings, macro strategist at Seaport Global Securities LLC, in a note.
Prices around $50 a barrel might be high enough to spur more U.S. production. The number of rigs drilling for oil in the U.S. has risen for three straight weeks, and some companies have announced that they are bringing previously drilled wells online.
U.S. crude production fell 39,000 barrels a day last week to 8.7 million barrels a day, the EIA said.
"Although crude production continues to decline for now, $50 oil is coaxing shale back," Citigroup analysts said in a note. "This could boost the outlook for U.S. crude oil production going forward."
In the U.S., crude-oil inventories have grown faster than companies have built new storage tanks. Crude storage facilities were 73% full in the week ended June 10, a record high, according to the EIA.
Gasoline stockpiles unexpectedly increased last week, and distillate supplies, including heating oil and diesel fuel, rose more than expected.
Gasoline futures settled down 0.47 cent, or 0.3%, at $1.5882 a gallon. Diesel futures fell 1.19 cents, or 0.8%, to $1.5048 a gallon.
Large oil stockpiles have been a stumbling block for oil prices. The gradual resumption of Canada's oil-sand production after wildfires and rising output by Iran and Iraq all point to a growth in the global glut of crude.
Oil investors also are keeping a close eye on Thursday's U.K. referendum on the country's membership in the European Union. Analysts said that while a British exit from the EU, or "Brexit," might not have an immediate impact on oil, the market could suffer collateral damage. A British departure from the bloc could damp appetite for riskier assets such as commodities.
Oil could also take a hit from a rising dollar, which analysts expect if the U.K. votes to leave. Oil is traded in the U.S. currency, and a stronger dollar makes oil more expensive to foreign buyers.
The latest opinion polls have sent conflicting signals. The outcome of the vote is expected Friday morning.
Jenny W. Hsu contributed to this article.
Write to Nicole Friedman at and Georgi Kantchev at
Source: Wall Street Journal