Oil Higher Ahead of Weekly EIA Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures stretched gains Wednesday morning as traders recalibrated their estimates for short-term domestic petroleum inventories ahead of the 9:30 a.m. CDT release of weekly data by the Energy Information Administration.

The oil futures complex extended the prior day’s big rally in premarket trade after the American Petroleum Institute late Tuesday reported an unexpected crude stock draw and a better-than-expected stock decline for distillates for the week ended Oct. 2.

The API's report, which also showed a build in gasoline stockpiles, came on the heels of the EIA’s October Short-term Energy Outlook that revised higher the federal agency’s global oil demand estimates while projecting a decline in domestic oil production.

Taken together, the reports from API and EIA along with technical support make a fundamental case for higher oil prices going forward, and outweigh recent data on jobs and service sector showing the U.S. economy on the throes of a slowdown in the wake of China's financial slump.

NYMEX November West Texas Intermediate crude futures rose 76 cents to $49.29 barrel, off a 2-1/2 month spot high. The contract is rubbing up against $50 bbl, a psychologically important mark, after rallying nearly 5% a day earlier. Resistance is currently pegged at $50.16.

The ICE November Brent crude futures contract was up 87 cents at $52.79 bbl, off a five-week spot high of $53.02, with next resistance pegged at $55.93 bbl.

In products trade, NYMEX November ULSD futures climbed 1.64 cents to $1.6279 gallon, off a fresh one-month spot high of $1.6335 and after rising nearly 4% a day prior. NYMEX November RBOB futures contract was the weakest segment of the complex, edging 0.21 cents higher to $1.4383 gallon, off a fresh two-week spot high of $1.4437.

On Wall Street, stock futures indices were higher on risk-on trade, while the dollar fell to a three-day low. The greenback’s weakness is underpinned by expectations the U.S. Federal Reserve will delay raising interest rates after Friday's weak payroll report and Monday's data showing a slowdown in U.S. service sector growth.

API reported the nation's commercial crude inventories fell 1.23 million bbl in the week-ended Oct. 2 while a survey showed the market expected to see a 1.5 million bbl stock build. At the Cushing, Oklahoma, supply hub that also serves as the delivery point for NYMEX WTI contract, stocks fell 100,000 bbl versus an expected draw of 500,000 bbl.

On products, API detailed a 2.9 million bbl draw for distillate inventories versus an expected decline of 1.0 million bbl. Gasoline stocks soared by 4.743 million bbl for the week and nine times the expected 500,000 bbl build.

The market awaits the EIA's weekly data study Wednesday morning for a comparison with API's numbers.

Meantime, EIA's STEO report raised its global demand outlook for this year by 170,000 barrels per day and for next year by 269,000 bpd.

The report anticipates global oil demand growing at a rate of 1.3 million bpd to a 93.787 million bpd total in 2015 followed by a 1.4 million bpd growth rate to a 95.198 million bpd total in 2016.

The STEO report estimates U.S. oil production would continue to decline this year through mid-2016 before recovering later in the year.

Deep cuts in capital expenditures are seen boosting oil prices over the long term. The Organization of Petroleum Exporting Countries and the International Energy Agency both expect expenditures on oil projects to fall by 22.4% and 20% this year.

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