Oil Trims Gains Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures trimmed gains on Thursday morning after the Bureau of Economic Analysis released positive data on U.S. economic growth during the first half of the year, which bolsters the case of a hike in federal funds rate and boosted the dollar.

The BEA data showed the economy expanded at a 2.3% annualized rate during the second quarter, falling short of an expected 2.5% growth rate but consistent with the Federal Reserve’s view that growth picked up during the three months ended in June after a slow start to the year, driven by consumer spending.

The oil complex rallied overnight after the Energy Information Administration on Wednesday reported draws in weekly domestic crude oil and gasoline stocks, and lower crude production.

At 8 a.m. CDT, NYMEX September crude futures rose 35 cents at $49.14 bbl while ICE Brent futures climbed 65 cents to $54.03 bbl.

In products trade, the NYMEX August RBOB contract climbed 2.36 cents to $1.8460 gallon, off a one-week high at $1.8680. The NYMEX August ULSD contract rose 1.53 cents to $1.6136 gallon. The August oil products contracts will expire Friday afternoon.

On Wall Street, U.S. equities reversed lower after BEA published its Gross Domestic Product data at 7:30 a.m. CDT. BEA also revised up GDP for the first quarter to 0.6% from the prior reading at negative 0.2%, reflecting an 0.8% swing in the upside revision.

Taken together, Thursday’s data shows the U.S. economy is accelerating as the Fed said in its policy statement issued on Wednesday. A strong economy would support domestic demand for oil, but at the same time such data bolsters the case for a hike in interest rates, which is bearish for oil futures while bullish for the dollar.

The Fed statement issued Wednesday afternoon showed no immediate changes in monetary policy, but upgraded the central bank’s assessment of the economy. The statement said it will be appropriate for the Fed to raise rates later this year once data comes in showing additional labor market improvement, with inflation expected to move towards the target.

The statement said there has been solid job gains and declining unemployment in recent months. Analysts said they expect a rate hike in September. The hawkish tone of the statement boosted the dollar that, in turn, exerted pressure on the oil complex.

On supply, EIA reported on Wednesday that domestic crude stocks fell by 4.2 million bbl in the week-ended July 24 to 459.7 million bbl, which included a 400,000 bbl draw at the Cushing, Oklahoma, supply hub that serves as the delivery point for NYMEX West Texas Intermediate crude.

The market had expected a 2.0 million bbl total crude stock draw and 300,000 bbl Cushing crude stock build. EIA data also showed crude imports fell 396,000 bpd for the week. But while the crude data was bullish, products data were bearish as it showed a bigger-than-expected distillate fuel stock build of 2.6 million bbl for the week and lower weekly implied demand for both distillates and gasoline.

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