Oil Higher on Demand Expectations

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher on Tuesday afternoon, led by a rally for the RBOB contract amid short-covering spurred by expectation of greater demand and higher prices for ethanol and renewable fuel credits.

Ethanol and tradeable biofuels credits rallied after the U.S. Environmental Protection Agency on Monday released the final renewable fuel volumes for 2014-2016, increasing from its spring proposal the amount of corn-based ethanol to be blended with gasoline for 2015 by 3.9% to 16.93 billion gallons while boosting 2016 volume by 4.1% to 18.11 billion gallons.

The ethanol volumes were based on demand estimates for gasoline, with the effect of the EPA decision to boost demand for ethanol. RBOB futures were already supported by expectations of strong demand even before the EPA decision, with talk of a refinery glitch also adding the rally, said analyst Phil Flynn at Price Futures.

Others agreed.

“The higher-than-expected renewable fuels requirements announced by the EPA late on Monday would translate into higher gasoline prices in the year ahead,” said Tim Evans, a specialist at Citi Futures.

Meantime, the market awaits oil supply report from the American Petroleum Institute. The data due out at 3:30 p.m. CT is expected to show a 1.0 million barrel stock draw for crude oil in the United States for the week ended Nov. 27.

However, the persistent glut in global supply and weak economic data from the U.S. and China kept the upside limited. Crude was the weakest segment of the complex.

NYMEX January West Texas Intermediate eked out a 20-cent gain to settle at $41.85 bbl while the ICE January Brent contract eased 17 cents to $44.44 bbl. NYMEX January ULSD futures added 1.48 cents to a $1.3690 gallon settlement while January RBOB futures spiked to 5.61 cents to a $1.3630 gallon settlement.

On Wall Street, U.S. stock indices were heading for a higher close Tuesday afternoon across the broad, while the U.S. dollar eased versus a basket of major currencies.

On supply, the survey by Schneider Electric shows the market expects a 1.0 million bbl crude oil stock build for crude the Cushing hub in Oklahoma, the supply point that also serves as a delivery location for NYMEX WTI crude oil futures.

The survey was mixed on products, but on average analysts expect stock builds of 300,000 bbl and 200,000 bbl for gasoline and distillates, respectively.

The Energy Information Administration will release its report Wednesday morning and traders will be looking clues to U.S. production. The U.S. rig count for last week fell, according to Baker Hughes.

Overseas, the Organization of Petroleum Exporting Countries is set to meet Friday in Vienna, but is unlikely to agree on a production cut to rebalance the market. OPEC already produces more than the agreed supply quota of 30 million barrels per day.

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