NYMEX Oil Futures Rally in Late Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied Thursday as part of a broader market rally amid optimism over the Greek debt crisis, a big rebound in Chinese markets and strong seasonal demand for gasoline, but pared gains after U.S. Secretary of State John F. Kerry said negotiators in the ongoing Iran nuclear talks were making progress.

Equity markets across Europe and Asia also trimmed gains in late trade after posting as much as 2% gains a relief rally, spurred by fresh optimism over Greece and China.

The Iranian nuclear talks were initially seen as bullish for oil futures when the focus was on the remaining differences between Iran and world powers, but that changed when Kerry raised hopes for a deal, which is considered bearish for oil prices, analysts said. Other reports said a deal is unlikely to be reached by Friday, July 10, which would double the Congressional review period for the final deal to 60 days and delay the lifting of sanctions and a hike in Iran's oil exports.

Investors were encouraged after Chinese regulators acted to halt the recent rout in Shanghai markets. Signs the U.S. Federal Reserve might delay raising the federal funds rate until next year to limit risks to the economy from the Greek debt crisis and China's economic slowdown also lifted market sentiment and sparked risk-on trade in commodities and equities.

"Oil futures were up on China's stock market [rally] and strong export data from Germany, and for a moment people thought demand is actually better than expected, but then the rally slowed when IMF cut global growth forecast and when Kerry spoke," said analyst Phil Flynn at Price Futures Group. "A deal in the Iran nuclear talks means more oil flowing to the market, so the market got a little nervous."

At settlement, the NYMEX August WTI crude contract was up $1.13 at $52.78 per barrel (bbl), off a three-day high at $53.54. The ICE August Brent crude futures contract surged $1.56 to a $58.61 bbl settlement, off a three-day high of $59.27. The Brent premium over WTI expanded 43 cents to $5.83 bbl, the widest the spread has been in about six weeks.

In products trade, the NYMEX August ULSD contract settled 2.08 cents higher at $1.7360 gallon, off a three-day high of $1.7599, while the NYMEX August RBOB contract rallied 4.61 cents to a $2.0451 gallon settlement, off a four-day high of $2.0590

On Wall Street, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 all rose by a least 0.4% this afternoon, while the U.S. dollar bounced off a four-day low, rising at last look.

Analysts said recent disappointing weekly and June jobs data were likely to dissuade the Fed from ending its easy money policy soon. The International Monetary Fund cut its economic outlook because of the increasing risks in China and Greece while urging the Fed to delay raising rates until 2016.

IMF said at the top of the hour the global growth rate would be 3.3% this year, down from prior estimate at 3.5%. Low interest rates support oil prices.

Despite bearish weekly oil data from the Energy Information Administration showing building domestic crude and product stocks, seasonal product demand continues to be strong versus a year ago, said analysts, while EIA expects U.S. oil production to fall for the rest of 2015 which supported the oil futures complex.

Investor sentiment was lifted after Greece submitted its latest bailout plan to euro-zone leaders. The market is clinging to hopes Greece can strike a deal with creditors before Sunday to remain in the euro-zone. The IMF and the U.S. both have urged debt relief for Greece, statements that could convince the EU creditors to be lenient with Athens.

Domestically, the EIA reported petroleum stock builds for the week-ended July 3 and the global market remains oversupplied.

However, U.S. gasoline demand eased 2.0% last week while up 6.7% compared to a year ago, EIA said. EIA also hiked its global oil demand outlook in its July Short-term Energy Outlook issued Tuesday.

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