Oil Climbs on Crude Stock Draw

NEW YORK (DTN) -- New York Mercantile Exchange oil futures continued higher Wednesday morning ahead of the release of a federal weekly oil inventory report that’s expected to show stock draws for crude oil and gasoline in the United States.

The oil futures complex extended Tuesday’s rally overnight after the American Petroleum Institute released a report showing larger-than-expected crude oil and gasoline stock draws in the United States, with trader’s focus on supply offsetting a rally for the dollar.

The dollar spiked to a 3-1/2-month high overnight but has since retraced the gains after payroll firm ADP reported private sector job growth slowed in July.

The reversal of the dollar’s advance boosted oil futures and equities, as a weak jobs report could keep the U.S. Federal Reserve from raising interest rates in September as many analysts expect.

At 8 a.m. CDT, NYMEX September crude futures were 55 cents higher at $46.29 bbl, near a two-day spot high of $46.47. ICE September Brent futures gained 64 cents to $50.63 bbl, near a two-day spot high of $50.74. The Brent premium over WTI increased 9 cents to $4.34 bbl.

In products trade, the NYMEX September ULSD futures contract rose 1.02 cents to $1.5577 gallon, holding above Monday’s six-year low of $1.5238. The NYMEX September RBOB futures contract gained 2.27 cents to $1.7079 gallon, off a two-day high at $1.7119 gallon.

On Wall Street, the U.S. stock market, which is seen as a barometer for investor confidence and risk appetite, rose after ADP reported that 185,000 private sector jobs were added in July, falling short of an expected 215,000 new jobs.

The expectation had been revised lower from initial projection of 219,000, so the weaker reading suggests the rate of new jobs is moderating, which could prompt the Fed to delay its first rate hike in nine years. The Fed said last month that a rate hike was likely later this year but added they would wait for the job market to improve some more.

The prospect of a rate hike increased after Atlanta Federal Reserve President Dennis Lockhart told the Wall Street Journal that the U.S. economy was ripe for a September hike in the federal funds rate.

For oil traders, the focus today is trained on short-term supply and demand fundamentals. API late Tuesday reported domestic crude oil inventories declined 2.4 million bbl during the week ended July 31 versus an expected 1.8 million bbl supply draw. At the Cushing, Oklahoma, supply terminal that serves as the delivery point for NYMEX West Texas Intermediate futures, crude stocks fell 500,000 bbl, surpassing a 300,000 bbl draw the market expected.

API's products data were mixed, as they showed gasoline stockpiles declined 1.0 million bbl last week instead of an expected 700,000 bbl stock decline, while distillate stocks climbed 1.7 million bbl as opposed to an expected increase of 300,000 bbl.

The Energy Information Administration will release its weekly oil report at 9:30 a.m. CDT.

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