Oil Prices Rise Ahead of Inventory Data

LONDON--Oil prices rose Tuesday ahead of the latest U.S. oil inventory data, but some analysts cautioned the recent rally might prove unsustainable.

Brent crude, the global oil benchmark, rose 0.5% to $66.75 a barrel on London's ICE Futures exchange after falling in earlier trade.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June recently traded up 0.7% at $59.33 a barrel.

Oil futures posted their largest monthly gain in almost six years in April, as the number of oil drilling rigs in the U.S.--a proxy for the activity in the industry--has continued to decline.

Crude inventories at the key U.S. storage hub of Cushing, Okla., fell last week for the first time in 20 weeks. Total oil inventories in the country, however, are still at an 80-year high.

The American Petroleum Institute, an industry group, will release its latest U.S. oil inventory data later Tuesday. The government estimate for inventories and oil production from the Energy Information Administration will follow Wednesday.

"I am hoping to see a drop in the U.S. crude oil production. That should push crude oil prices higher," said Daniel Ang, analyst at Phillip Futures.

Brent prices are up more than 40% since their lows in January, but some analysts cautioned the global oversupply of oil shows little signs of dissipating.

"The run-up in prices in our view conceals a weak underlying fundamental balance," analysts at Bank of America Merrill Lynch said. The bank sees U.S. crude prices double dipping to $50 a barrel as refinery maintenance kicks in again in September before recovering to $57 a barrel by year-end.

According to David Hufton at London brokerage PVM, while some deep sea and Arctic oil exploration isn't feasible at the current prices, the shale oil industry can continue to grow at $60 a barrel as operation costs plummet.

"The rally from this year's low is impressive, but it contains the seeds of its own destruction in potentially restimulating supply and curtailing demand," Mr. Hufton said.

Nymex reformulated gasoline blendstock for June--the benchmark gasoline contract--rose 0.4% to $2.042 a gallon, while ICE gasoil for May changed hands at $606.75 a metric ton, up $2.75 from Monday's settlement.

Biman Mukherji contributed to this article.

Write to Georgi Kantchev at [e-mail]

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