Oil Makes Hefty Gains Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled Tuesday afternoon with hefty gains although off highs, rallying on technical support, a Texas refinery glitch, geopolitical risks and the prospect of higher fuel demand.

The rally also came ahead of the release of weekly U.S. oil inventory reports that are expected to show stock draws for crude and gasoline for the week-ended June 19.

The American Petroleum Institute is scheduled to release its weekly petroleum report at 3:30 p.m. CDT, with the Energy Information Administration set to issue its report at 9:30 a.m. CDT Wednesday.

A Schneider Electric survey showed crude stocks are expected to have declined 2.0 million bbl last week. The survey shows analysts expecting a gasoline stock draw of 300,000 bbl and a distillates stock build of 200,000 bbl for the week.

NYMEX August WTI futures settled up 63 cents at $61.01 bbl, moving off a better than one-week high of $61.42. ICE August Brent futures settled $1.11 higher at $64.45 bbl, off a three-day high of $64.89. Brent’s premium over the WTI contract narrowed 22 cents to $3.44 bbl at the close.

In products trade, NYMEX July ULSD futures spiked 4.18 cents to a $1.9112 gallon settlement, off a three-day high of $1.9269. NYMEX July RBOB futures surged 4.69 cents to a $2.0766 gallon settlement, off a fresh two-day high of $2.0937.

On Wall Street, U.S. equities were higher Tuesday afternoon on risk-on trade, boosted by optimism stoked by an expected Greek debt deal and better-than-expected U.S. new home sales data.

The Commerce Department reported new home sales climbed 2.2% to an annual rate of 546,000 in May. Economists expected anywhere from a decline of 1.0% to an increase of 1.5% for the month.

Investors were also enthused after eurozone leaders welcomed an offer from Greece to raise taxes and the retirement age in exchange for an extension of financial aid. A deal between Athens and its creditors could come as early as Wednesday, reports said, which would avert a debt default and potential knock-on effects on the eurozone economy. A eurozone economic recovery would support demand for oil, analysts added.

Oil demand prospects were also boosted by Markit’s data showing the euro-zone manufacturing index jumped to a 14-month high at 52.5 in June, up from 52.2 for May. Also, HSBC’s flash China manufacturing index for June rose to 49.6 in June from 49.2 in May.

“Traders initially thought manufacturing data as bearish before they revised their view, realizing that [oil] demand could be a lot stronger,” said senior analyst Phil Flynn at Price Futures in Chicago.

“There was a story about a Shell Deer Park, Texas, refinery having a containment leak form a process unit. I don't know how much such an incident might affect refinery output, but it is a decent sized refinery,” said David Thompson, the executive vice president at Powerhouse in Washington, D.C. “The other concern is about how strong gasoline demand will be in the report tomorrow.”

Tim Evans, an energy specialist at Citi Futures in New York, said the rally was “primarily technical.”

On the geopolitical front, traders are keeping a watchful eye on the Iran nuclear talks that’s set to be concluded on June 30. The talks could drag on beyond the June 30 deadline because both sides are still apart, according to reports. Also, traders are increasingly concerned about the U.S.-Russia tensions, analysts said.

George Orwel can be reached at george.orwel@telventdtn.com