Oil Up as Focus Shifts to Demand

NEW YORK (DTN) -- New York Mercantile Exchange oil futures gained Thursday morning on bargain hunting after West Texas Intermediate crude rebounded a day after falling to a near three-week low on building inventory, while ULSD and RBOB futures posted three-day highs on an improving demand outlook.

Dovish comments from European Central Bank Mario Draghi also stoked risk-on trade, boosting equities and oil futures, although a stronger dollar limited oil futures’ upside.

Draghi said some ECB members want to be more accommodative “today” and policymakers are considering implementing additional stimulus measures, including lowering bank deposit rates and negative interest rates.

For oil futures, the focus has shifted to rising demand Thursday after weekly oil inventory data issued Wednesday by the Energy Information Administration was bearish for crude while bullish for products.

Seasonal demand should support oil prices in the short-to-medium term as refineries returning from autumn maintenance boost run rates, analyst Kyle Cooper at IAF Advisors said.

At 8 a.m. CDT, NYMEX December West Texas Intermediate futures rose 54 cents to $45.74 barrel while the ICE December Brent crude futures contract rose 47 cents to $48.32 bbl.

NYMEX November ULSD futures climbed 1.69 cents to $1.4669 gallon, off a $1.4769 three-day high. NYMEX November RBOB futures edged up 1.84 cents to $1.2992 gallon, off a three-day high of $1.3108.

On Wall Street, U.S. stock indices jumped by more than 0.7% across the board, while the dollar index rallied to a one-week high after Draghi said the ECB is closely watching the weak inflation and was ready to act, if needed, by adjusting the design of the bank’s asset purchase program. In fact, he said, some policymakers want more economic stimulus right now.

Draghi said the slowing growth in China has not affected global growth yet and confidence in the euro-area, adding oil prices have been under pressure in the past year from excess supply rather than demand.

EIA’s report for the week ended Oct. 16 showed domestic crude oil stocks posted an 8.0 million bbl build, more than twice the expected rise of 3.3 million bbl. However, gasoline stocks were drawn down 1.5 million bbl for gasoline versus market forecast for a 1.7 million bbl draw, and distillates stocks fell 2.6 million bbl, above expectations for a 2.0 million bbl draw.

Demand disposition was more encouraging for market bulls. EIA reported a 20,000 barrel per day rise in implied gasoline demand and a 201,000 bpd jump for distillates. Refinery crude oil inputs, a proxy for crude demand, rose 78,000 bpd for the week. Total products supplied over the last four-week period, a better measure for demand, averaged about 19.4 million bpd, up 1.0% from the same period last year.

Bullish traders were also encouraged by the fact that domestic crude oil production was unchanged at 9.1 million bpd after increasing in late September and a technical meeting Wednesday between the Organization of Petroleum Exporting Countries and non-OPEC oil producers Russia and Mexico that did not result in an agreement to cut production.

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