Oil Higher Ahead of EIA Data

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved higher on Wednesday morning ahead of the release of data from the Energy Information Administration that’s expected to show stock draws for crude oil and gasoline in the United States while distillate stocks are expected to have increased during the week-ended Aug. 7.

The oil futures complex was also boosted by a new monthly report from the International Energy Agency projecting global oil demand growing this year at the fastest rate in five years as economic growth picks up pace and consumers respond to lower oil prices.

Markets also are closely watching China’s sustained efforts to deal with its slowing economy through direct government intervention. China's central bank for the second day in a row devalued its currency, which points to slowing economic growth. The move comes after China’s trade data showed exports tumbled 8.3% in July, so the devaluation is aimed at boosting exports, analysts said.

“Now the Wall Street Journal is reporting the Chinese central bank is buying Yuan to soften the blow, [but] it is adding to the confusion [and] also raises the question if China's move is more bullish or bearish for oil,” said analyst Phil Flynn at Price Futures.

At 8 a.m. CDT, the September West Texas Intermediate crude futures contract rose 58 cents to $43.66 bbl after bouncing off Tuesday’s near six-month spot low of $42.69 bbl. ICE Brent futures added 27 cents to $49.45 bbl after inside trade, with the Brent premium over WTI easing 29 cents to $5.81 bbl.

In products trade, the September ULSD futures contract rose 1.41 cents to $1.5770 gallon after inside trade. The September RBOB futures contract advanced 1.55 cents to $1.7092 gallon, off a one-week spot high of $1.7255.

On Wall Street, U.S. stock futures were lower, extending Tuesday’s selloff in concert with other global bourses. The dollar fell to a one-month low versus a basket of six rival currencies following China’s devaluation of its currency by a total of 3.5% over the past two days.

The Peoples Bank of China overnight announced a 1.6% devaluation of the yuan a day after it depreciated the currency by 1.9% on Tuesday after Chinese exports tumbled 8.3% in July. The move may benefit exports but it also raises fresh questions about the country’s economy which has been slowing in recent quarters.

However, for oil traders the main issue is supply and demand fundamentals.

In its Oil Market Report for August released Wednesday morning, IEA said global oil demand in 2015 is expected to grow at a 1.6 million bpd rate, up 200,000 bpd versus its estimate published in the July report. In 2016, persistent macroeconomic strength would support global demand and is expected to grow at a 1.4 million bpd rate, IEA added.

The watchdog said world oil supply fell nearly 600,000 bpd in July, mostly on lower output from producing countries that are not members of the Organization Petroleum Exporting Countries. OPEC crude production held steady close to a three-year high, IEA added.

"As lower prices and spending cuts take a toll, non-OPEC supply growth is expected to slow sharply from a 2014 record of 2.4 million bpd to 1.1 million bpd this year and then contract by 200,000 bpd in 2016," said the agency.

The IEA report differs markedly from reports issued on Tuesday by OPEC and EIA. OPEC raised both its global oil demand and supply by 90,000 bpd from last month's levels. However, the market took note of the fact that in July OPEC production rose 101,000 bpd to an average 31.51 million bpd, the highest since 2012 when the cartel agreed to cap its output at 30.0 million bpd.

EIA's Short-term Energy Outlook cut its estimate for global oil demand growth for 2015 by 9,000 bpd from data published in July while raising 2016's demand growth rate estimate by 55,000 bpd.

The market is considering short-term domestic supply and demand disposition as well. The American Petroleum Institute late Tuesday reported a less-than-expected 800,000 bbl crude stock draw for the week ended Aug. 7 while a survey projected a 2.3 million bbl stock draw.

The market is anticipating EIA's weekly oil supply data due for publication at 9:30 a.m. CDT. A Schneider Electric survey shows the market expects gasoline stockpiles to decline 1.5 million bbl while distillate supply is seen rising 500,000 bbl for the week.

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