JBAXY Julius Baer Group Ltd (PK)

NEW YORK—Oil prices fell Friday on skepticism that a large drop in U.S. inventories last week marks the beginning of a trend.

But prices are still set to post a weekly gain following the biggest one-week stockpile decline in about 17 years and indications of robust demand.

U.S. oil for October delivery recently fell $1.27, or 2.7%, to $46.35 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.50, or 3%, to $48.49 a barrel on ICE Futures Europe.

Prices surged Thursday after the Energy Information Administration said U.S. crude supplies fell by 14.5 million barrels last week, the biggest weekly drawdown since 1999.

Crude inventories around the world stand near record levels, keeping prices subdued, and traders are closely watching inventories for signs that the global glut of crude is shrinking.

But last week's large drop was viewed as an outlier by traders and money managers because of bad weather that halted some production and prevented imports from arriving in the Gulf Coast.

"Last week's storm caused production disruptions and import delays," said Norbert Rü cker, head of commodities research for Zurich-based bank Julius Baer, in a note. "Gulf of Mexico oil and gas operations have largely resumed and tankers are queuing for offloading. The storage decrease is set to be a one-off, likely offset by large increases next week."

Still, the weekly data showed unusually large demand for this time of year. Estimated consumption rose to 21.3 million barrels a day in the week ended Sept. 2, the EIA said, a high for that week according to data going back to late 1990.

Morgan Stanley said in a note Friday that the bank's forecast for Brent prices to average $51 a barrel in 2017 could be too high, as the market looks more likely to remain oversupplied into next year.

"Producers are adapting to low prices and beginning to invest again," the bank said in a note. "As long as the market remains oversupplied, we would expect oil to remain in a similar $35-55 trading range as it has most of this year."

The Organization of the Petroleum Exporting Countries and Russia are continuing to talk about a possible production freeze ahead of a meeting on the subject in Algeria later this month. But any deal would have to overcome major obstacles, including Iran's refusal to consider a production cap until its production grows further.

Gasoline futures recently fell 3.3%, to $1.3695 a gallon. Diesel futures fell 2.4%, to $1.4465 a gallon.

Write to Nicole Friedman at nicole.friedman@wsj.com and Kevin Baxter at Kevin.Baxter@wsj.com

(END) Dow Jones Newswires

September 09, 2016 14:45 ET (18:45 GMT)

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