Oil Moves Mixed in Early Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved mixed with an upside bias, boosted by data showing strong economic growth in the United States and expectation domestic oil production would continue to decline as companies dramatically slash capital expenditures due to low oil prices.

U.S. gross domestic product grew at a 3.9% annualized rate in the second quarter, the Commerce Department said, boosted by stronger consumer and construction spending. That’s revised up from a 3.7% growth rate reported last month and from 2.3% initially reported in an advanced estimate.

The upside revision comes a day after Federal Reserve Chair Janet Yellen indicated the central bank is still on track to raise interest rates this year for the first time in nine years because the U.S. economy remains resilient.

“Janet Yellen is giving oil the proverbial double-edged sword,” said analyst Phil Flynn at Price Futures Group. “While oil likes the fact that she is signaling that interest rates will rise giving a boost to confidence that the global economy is getting better. Yet increasing interest rates in the U.S. could slow demand and add to the perception of an increasing oil glut.”

At 8 a.m. CDT, NYMEX November WTI crude futures were up 34 cents at $45.25 barrel, while the ICE November Brent crude oil futures contract was up 1 cent at $48.28 bbl. The NYMEX October ULSD futures contract was near flat at $1.5235 gallon while the NYMEX October RBOB futures contract eased 0.44 cents to $1.3608 gallon. All the contracts have since moved higher.

On Wall Street, U.S. stock indices were higher on risk-on trade, with the dollar index bouncing off a three-day low and rallying to a better than one-month high after Yellen’s comments.

Yellen gave a speech at the University of Massachusetts Amherst on Thursday where she indicated a rate hike is expected this year with the U.S. economy showing signs of strength.

In sharp contrast to her speech a week ago, Yellen's latest comments eased concern over low U.S. inflation and discounted risks from China's economic slowdown. She was bullish about the U.S. economy, which bodes well for oil demand. The pace of rate increases will be gradual, she said.

A rate hike is bearish for oil in the longer term as risk-averse traders would respond by moving to the sidelines and reducing liquidity, said analysts.

The current low price environment is forcing many oil producers to reexamine their production projects, with a number of operators cutting their capital expenditures. The Energy Information Administration said U.S. production increased by 19,000 barrels per day to 9.136 million bpd during the week ended Sept. 18, although output is down from a 9.61 million bpd high reached in early June.

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