Oil Edges Higher in Early Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures edged higher Thursday morning, rebounding from a sell-off a day prior on the back of a Reuters news report, which cited Energy Intelligence, claiming that Saudi Arabia would propose a deal to balance oil markets with non-members of the Organization of Petroleum Exporting Countries.

The upside was also supported by the U.S. dollar that, while still near a 12-year high, eased versus the euro and other currencies after the market was disappointed with the European Central Bank's new stimulus measures.

Oil futures' upside was capped, however, by the fact the dollar is still relatively strong and that the market still has doubts on whether OPEC would indeed cut production when members meet Friday in Vienna to discuss oil market conditions and output policy.

At 8 a.m. CT, NYMEX January West Texas Intermediate rose 74 cents to $40.68 barrel, after bouncing off Wednesday's more than one-week low of $40.77, while ICE January Brent advanced $1.12 to $43.61 bbl, after bouncing from the day prior's three-month low of $42.43.

In products trade, NYMEX January ULSD futures rallied 3.49 cents to $1.3398 gallon, bouncing off a 6-1/2 year spot low of $1.3049, while the January RBOB futures contract added 1.15 cents to $1.3046 gallon, bouncing off a one-week low posted a day prior.

On Wall Street, the stock market was higher while the dollar reversed lower after the comments from ECB President Mario Draghi. The U.S. dollar index had rallied earlier to the highest level since March 2003.

Draghi at his ongoing news conference announced the ECB has decided to extend the duration of its asset purchase program through at least March 2017 or further if needed, but did not increase the size of the program as the market expected.

The ECB also cut bank deposit rate by 0.1% to negative 0.3%, but the market thinks that's not enough given Drahi had telegraphed over the past two months that he will do whatever it takes to jumpstart the economy. Analysts said Draghi had overpromised and under-delivered. Draghi, however, defended his actions, saying the measures announced Thursday morning were adequate.

On supply, market attention is turning to Friday's OPEC summit. Energy Intelligence, a respected industry newsletter group with sources in the Middle East, reported today that Saudi Arabia was considering proposing OPEC cuts output of 1.0 million barrels per day. But that proposal is under tough conditions, including Iran and Iraq limiting output growth as well as the involvement of non-OPEC producers.

Saudi Arabia has often been opposed to output cuts in part because their strategy depends of maintaining market share in the face of competition from non-OPEC producers such as Russia and the United States. The conditions proposed makes it unlikely there would be output cuts since it would be difficult to get non-OPEC members to cut production, while Iran is preparing to raise its output after sanctions imposed in 2012 due to its nuclear program are eased. OPEC currently produces about 1.0 million bpd above the 30.0 million bpd supply quota agreed to three years ago.

Domestically, the Energy Information Administration Wednesday reported a 1.2 million bbl crude stock build for the week-ended Nov. 27, the 10th straight crude stock build.

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