Oil prices moved into the red, erasing much of this week’s gains as investors took profits.
Prices had been on the rise earlier Thursday following concerns that Iraqi Kurdistan’s independence vote could hit supply from the oil-rich region and after U.S. data Wednesday showed that record-high exports of U.S. crude and additional demand from refineries helped drain 1.8 million barrels from U.S. crude inventories last week.
But investors pulled back, sending oil prices tumbling amid concerns that the rally had gone too far.
“I think more than anything there was some profit-taking here,” said Tariq Zahir, managing member of Tyche Capital Advisors. “It’s had a heck of a run.”
U.S. crude futures fell 58 cents, or 1.11%, to $51.56 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 49 cents, or 0.85%, to $57.41 a barrel on ICE Futures Europe.
Prices also tumbled after data-tracking firm Genscape said storage at the Cushing, Okla., storage hub rose to 65.1 million barrels, up by close to 2 million barrels from Friday.
Oil prices have been climbing the past few weeks amid renewed faith in the efforts of the Organization of the Petroleum Exporting Countries and other major oil producers to eliminate the global supply glut.
But bearish factors are on the horizon: U.S. production has continued to rise and producers could take advantage of the higher prices to ramp up more quickly.
Oil’s recent rally represents a return to “the optimism we saw earlier in the year, that the reduction of supply through the 1.8 million [barrel] cut is basically taking hold and tightening the market,” said Gene McGillian, research manager at Tradition Energy.
Still, he said the market could be vulnerable to a selloff if data in the coming weeks don’t continue to show the glut of oil is shrinking.
U.S. and global oil benchmarks have diverged in recent weeks, with the gap between the two trading at its widest in more than two years.
Brent has been bolstered by tightening supplies abroad. This week it also jumped on fears that the Iraqi Kurdish independence referendum would lead to conflicts that could interrupt the flow of Kurdish oil. West Texas Intermediate, the U.S. reference price, has lagged behind as U.S. fuel makers were hobbled by Hurricane Harvey and unable to process as much crude.
The price gap has led to a surge of exports from the U.S. as buyers take advantage of the discount. U.S. crude exports rose to a record 1.5 million barrels a day last week, according to the U.S. Energy Information Administration.
“The only real crude surplus left is in the U.S., and, as we whittle down the last of the stored barrels, the world is turning to the U.S. as the supplier of last resort,” Energy Aspects analysts wrote in a research note.
Some expect oil prices to continue to rise.
“We are still viewing this as a near term bull market capable of fresh highs,” Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a client note. “We expect an upside reversal tomorrow amidst various contract expirations.”
Gasoline futures fell 2.22 cents, or 1.34%, to $1.6318 a gallon. Diesel futures fell 1.43 cents, or 0.77%, to $1.832 a gallon.