Oil Moves Higher Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved higher Tuesday morning, rallying on technical support and a note from investment bank Goldman Sachs saying U.S. crude oil production is likely to fall more than expected next year. However, the upside was limited by a firmer U.S. dollar.

The bank Tuesday estimated domestic output would drop by 35,000 barrels per day in 2016 on the basis of the current rig count, revised from the 20,000 bpd decline the bank estimated a week ago. U.S. output peaked at 9.6 million bpd in April but has since fallen to around 9.1 million bpd.

The market looks ahead to weekly petroleum inventory data that are expected to show rising crude oil stocks and falling refined products stocks.

At 8 a.m. CDT, crude was trading in contango, with the NYMEX December West Texas Intermediate futures contract up 92 cents at $47.06 barrel, near a fresh two-week high of $47.08, while the ICE December Brent futures contract gained 69 cents to $49.48 bbl.

In products trade, NYMEX December ULSD futures climbed 2.55 cents to $1.5324 gallon, off a near three-week spot high of $1.5334. The December RBOB futures contract added 2.60 cents to $1.4020 gallon.

On Wall Street, U.S. stock indices were lower while the dollar edged higher on speculation the U.S. Federal Reserve would raise interest rates in December if the October jobs report due Friday is positive. The odds of a rate hike have now risen 52%, up from 34% last month, according to a Bloomberg News survey.

The total U.S. rig count declined by 12 to 775 last week, with oil rigs falling 16 to 578, oil services firm Baker Hughes reported Oct. 30, the lowest number of rigs drilling for oil since June 2010. Total rigs are down nearly 60% from a year ago while oil rigs are down 63.5% on a year-over-year basis.

The American Petroleum Institute will issue its weekly oil supply data this at 3:30 p.m. CDT and the U.S. Energy Information Administration will release its weekly data on Wednesday morning.

An early survey of analysts expect a 3.75 million bbl build in domestic crude oil stockpiles during the week ended Oct. 30, the sixth straight weekly gain. The survey also showed an anticipated 500,000 bbl drawdown in commercial gasoline inventory levels, and a 2.25 million bbl seasonal decline in total distillate supply.

Some analysts estimate that WTI crude prices, which have slumped about 40% in the past year, are near the bottom and could start an upside correction. However, the Organization of Petroleum Exporting Countries continues to pump above its quota of 30 million bpd and stockpiles in the U.S. remain high. OPEC has a scheduled meeting on Dec. 4, but most analysts believe a production cut will not be on the menu for discussion.

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