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Oil tallies third climb as traders bet on sharp weekly U.S. supply drop


Oil settled higher Monday, after flipping between losses and gains, buoyed by forecasts for a weather-related weekly decline in U.S. crude supplies, despite ongoing pressure from expectations of further growth in U.S. output.

Analysts are eyeing the possibility of a hefty decline in last week’s U.S. crude inventories in the wake of temporary production disruptions caused by a tropical storm in the Gulf of Mexico.

“Oil is trying to find its footing after last week’s collapse,” said Phil Flynn, senior market analyst at Price Futures Group. “Talk that we could see a big drawdown in supply this week is giving support, as well as the fact the we are hearing that many shale producers are starting to get ready to cutback.”

August West Texas Intermediate crude CLQ7, +0.02%  rose by 37 cents, or 0.9%, to settle at $43.38 a barrel on the New York Mercantile Exchange. Futures prices trade around 10% lower month to date, which would be their largest monthly loss since July 2016, according to FactSet data.

Brent crude for August delivery LCOQ7, +0.07%  added 29 cents, or 0.6%, to $45.83 a barrel after posting gains in the last two sessions.

“There is ongoing talk that [the Organization of the Petroleum Exporting Countries] has failed in that effort despite May compliance at 106% of the proposed cuts, which we’d rate as more of an unprecedented accomplishment than a disappointment,” said Tim Evans, energy futures specialist at Citi Futures, in a daily note. “And while prices may not have held higher levels achieved after the cuts were announced, we have no doubt that prices would be far weaker without the efforts of OPEC and other cooperating non-OPEC producers.”

On Friday, Baker Hughes BHI, -0.54%  reported a 23rd-weekly rise in the number of active U.S. oil rigs, suggesting that domestic production is poised to climb.

Still, “reports of a pullback in investment in shale oil should be raising some concerns,” said Flynn, noting that U.S. oil prices have taken a month-long tumble of around 20%. “The shale players will have to change course as the ‘adding rigs at will’ plan seems to be blowing up in their face.”

Flynn also said that production shut ins caused by Tropical Storm Cindy last week “should lead to sizable draws” in crude supply. “We are looking for a 4.5 million-barrel drop in crude supply and a 1.0 million-barrel drop in Cushing, Oklahoma. Gasoline supply should fall by 3.0 million barrels and distillates by 2.0 million barrels.” The Energy Information Administration will issue its weekly U.S. petroleum-supply data covering the week ended June 23 on Wednesday.

On Nymex Monday, July gasoline RBN7, +0.27%  rose half a cent to $1.439 a gallon, while July heating oil HON7, +0.12%  added less than a penny to $1.380 a gallon.

Natural gas for July delivery NGN17, +0.26%  rose 9.8 cents, or 3.4%, to $3.027 per million British thermal units.

Weather forecasts showing warmer-than-normal temperatures over the next couple of weeks across Canada and most of the U.S. provided support to natural gas, said Evans. “The added cooling demand should limit the rate of [U.S.] storage injections in the weeks ahead.”

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