Oil Rallies Ahead of US Supply Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended higher this afternoon after rebounding from a steep Monday sell-off, rallying Tuesday ahead of weekly petroleum inventory data that's expected to detail across-the-board stock draws for crude and products in the United States.

The oil futures' advance was also underpinned by positive economic data and stability in the U.S. equities market. The prospect of further decline for U.S. oil production provided additional support for the oil complex.

"Oil rebounded with the stock market and concern about the expected stock draw at Cushing, Oklahoma, prompted short covering for WTI and gave products a boost, but the stock market is off highs now, so the oil market rally lost momentum towards the end of the session," said analyst Phil Flynn at Price Futures in Chicago.

Flynn added, "If we see a crude stock draw of 1.0 million barrel at Cushing it'll be a sign U.S. production is falling, which is net positive. Also, technical support for WTI is still holding at $44 bbl."

At settlement, NYMEX November WTI crude futures were up 80 cents at $45.23 bbl, off a two-day high of $45.70, while ICE November Brent crude futures added 89 cents to a $48.23 bbl settlement.

NYMEX October ULSD futures climbed 2.04 cents to $1.4976 gallon while November prices increased 2.34 cents to $1.5251 gallon at settlement. NYMEX October RBOB futures added 1.44 cents to $1.3632 gallon while November prices climbed 1.69 cents to $1.3495 gallon at settlement. NYMEX October products futures contracts are set to expire Wednesday.

On Wall Street, most of major U.S. stock indices held on to modest gains this afternoon after losing momentum after an early rally. The dollar index fell to a three-day low.

Traders mulled whether the domestic economy is strong enough to sustain a slowdown in China, with Case-Shiller home price index for 20 major cities up 4.96% year-over-year in July. New York-based Conference Board said its index of consumer confidence rose to 103.0 in September from 101.1 in August, the second highest level since 2008, which bodes well for oil demand.

Earlier, the European Commission said Eurozone economic sentiment index rose to 105.6 in September, the highest since June 2011, from a revised 104.1 for August. The increase came despite concerns about China woes and slow global growth.

The main focus is oil market fundamentals. There's mounting evidence U.S. production is falling, which could work to tighten the supply and demand balance. Deutsche Bank estimated that non-OPEC production growth could reverse from expansion to contraction in 2016 for the first time since 2008.

Short term, a survey by Schneider Electric estimates a 200,000 bbl draw in crude stocks for the week-ended Sept. 25, with distillate stocks seen down 700,000 bbl while gasoline stocks are seen to have decreased by 500,000 bbl.

The American Petroleum Institute is set to release its weekly data at 3:30 p.m. CDT followed by the Energy Information Administration's data due at 9:30 a.m. CDT Wednesday.

Research firm Genscape on Monday estimated a drawdown of 1.0 million bbl from the Cushing, Oklahoma, supply hub that serves as the NYMEX delivery point for West Texas Intermediate.

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