Oil Gains in Early Monday Trade

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery added to overnight gains early in the regular session and after losses Friday during limited holiday trading, with the December RBOB contract trading at a fresh three-week high ahead of its expiration Monday afternoon.

NYMEX oil futures are holding below last week’s highs ahead of a busy week that features several closely watched market indicators, including Friday’s non-farm payroll report on Friday, and in front of a meeting by the Organization of Petroleum Exporting Countries.

At 8 a.m. CT, NYMEX January West Texas Intermediate crude futures were up 66 cents at $42.37 barrel, with the January Brent crude contract on the IntercontinentalExchange 62 cents higher at $45.48 bbl.

NYMEX December ULSD futures were holding above last week’s traded $1.3454 gallon 6-1/2 year low, up 2.28 cents at $1.3752 gallon ahead of its expiration Monday afternoon, with the January contract 2.57 cents higher at $1.408 gallon in the contango market.

NYMEX December RBOB futures were up 1.23 cents at $1.4028 gallon, and have since traded to a $1.4111 three-week high—the third high during the previous four sessions. NYMEX January RBOB futures were up 0.93 cents at $1.3460 gallon in the backwardated market.

The RBOB contract is lent upside support from a longer-than-expected outage at an Irving Oil refinery in east Canada, which ships gasoline to the U.S. Northeast. In contrast, ULSD futures are under pressure from forecasts calling for a warmer-than-usual winter and surplus supply, with distillate fuel inventory 25% higher than during the comparable year-ago period.

While higher, the WTI contract is seeing limited upside amid a stronger U.S. dollar, which rallied to an eight-month high in index trading Monday. The dollar and domestic oil have an inverse relationship since oil trades internationally in the greenback.

The dollar is likely to strengthen further this week, with the European Central Bank expected to expand its monetary easing policy when it meets Thursday. In contrast, the Federal Reserve is largely seen lifting the federal funds rate when it meets Dec. 15-16, which would boost the dollar’s value.

Friday’s non-farm payroll report is seen as the last key indicator for the Fed to consider ahead of its mid-month meeting, with the market expecting 200,000 new jobs were created last month and the national unemployment rate held unchanged at 5.0 percent; the lowest it’s been since April 2008.

OPEC could surprise the market with a production cut when they meet in Vienna later this week to discuss output quotas. OPEC surprised the market Thanksgiving Day 2014 when the cartel adopted a policy of maintaining market share instead of cutting production to shore up price, triggering a massive selloff.

This year, a number of OPEC members are reportedly lobbying Saudi Arabia to rein in its production because of an oversupplied market that has capped global oil prices. The market expects no change in the policy, which analysts explain is designed to knockout higher cost tight oil producers in the United States that were the catalysts for the global glut in oil supply.

Brian Milne can be reached at brian.milne@dtn.com

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