Oil Futures Register Solid Gains

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange registered hefty gains Thursday following mixed trade early in the session; an afternoon rally by the RBOB contract drove the advance.

Thursday's advance builds on Wednesday's gains that were driven by a jump in demand for gasoline and distillate fuels, with RBOB futures reaching a two-week high and Brent crude a three-week high this afternoon. A sell-off in China's stock market and weaker-than-expected consumer prices in the euro zone in January reversed those gains before a bullish reading for U.S. durable goods sales released by the Commerce Department this morning worked to neutralize the bearish overseas developments.

Today's advance also comes in front of the expiration of the March oil products contracts on NYMEX and ICE April Brent crude futures Monday (2/29) afternoon, with March RBOB trading at a steep discount to the April contract.

The gasoline market is transitioning to lower Reid vapor pressure gasoline which is more costly to produce while refiners are also taking down units for turnaround. Gasoline demand typically increases from winter lows, with peak demand during the summer months. This seasonal dynamic underpinned the rally by RBOB futures that was enhanced by a 372,000 bpd jump in implied demand to a 9.576 million bpd six-month high during the week-ended Feb. 19 reported Wednesday by the Energy Information Administration.

NYMEX March RBOB futures settled up 4.56cts at $1.0560 gallon, trimming a gain to a $1.0650 two-week high, while also narrowing its discount to the April contract by nearly a penny from a 26.54cts discount on Wednesday -- the widest the spread between the first and second delivery months has been in a year. April RBOB futures settled up 3.64cts at $1.3122 gallon.

NYMEX March ULSD futures settled up 1.06cts at $1.0700 gallon and April futures 1.07cts higher at $1.0848 gallon in the contango market, with March delivery paring an advance to a $1.0794 gallon four-day high.

ULSD futures were lent upside support from ICE April Brent crude futures, which settled 88cts higher at $35.29 bbl after trimming an advance to a $35.74 three-week high.

April West Texas Intermediate crude futures settled 92cts higher at $33.07 bbl, holding below Tuesday's $33.53 near three-week high with a high today at $33.49 bbl.

WTI's discount to Brent crude was little changed at $2.22 bbl, with record high supply at the Cushing supply hub in Oklahoma widening WTI's discount in February to nearly $4.00 bbl from near parity in late January. The EIA on Wednesday reported Cushing supply at 65.1 million bbl as of Feb. 19, accounting for 89.2% of working capacity at the terminal, which serves as the delivery location for the NYMEX WTI contract.

The U.S. dollar was weaker in late afternoon index trade after rallying to a three-week high Wednesday, with the greenback consolidating within Wednesday's trade range. The dollar was boosted by a 4.9% gain in durable goods for January, erasing a 4.6% decline in December in the notoriously volatile index.

However, eroding market confidence that the Federal Reserve would boost the federal funds rate in the coming months because of a global economic slowdown and limited growth in inflation capped the greenback's upside. To this point, the Bureau of Economic Analysis Friday morning is scheduled to release its second estimate for U.S. gross domestic product for the fourth quarter 2015 after reporting a meager 0.7% annualized growth rate in its advanced estimate in late January. The market is bracing for a downward revision to 0.4% growth.

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