Oil Futures Higher Despite Stock Build

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher this afternoon, buoyed by supportive economic data that raised the prospect for higher oil demand in the United States and data showing another decline in domestic crude oil production.

"Oil shook off a 10 million barrel crude stock build, a sign that we are no longer shocked any more by increases in supply and now we are looking at the demand side of the equation," said analyst Phil Flynn at Price Futures in Chicago. "The jobs report was also definitely supportive because it shows the economy is doing OK and demand for products won't fall."

The Energy Information Administration report was initially considered bearish because it showed a steeper-than-expected rise in U.S. crude supplies. The EIA data also showed a gasoline supply draw that was more than expected and an unexpected increase in distillate fuel stockpiles.

However, analysts said oil futures reversed higher as EIA data also showed a continued decline in U.S. oil production, with increased refinery crude inputs and higher runs signaling greater demand for crude oil.

"U.S. oil production fell another 25,000 barrels per day (bpd) for the week to 9.08 million bpd and that is bullish," said analyst Kyle Cooper at IAF Advisors in Houston.

NYMEX April West Texas Intermediate crude futures rose 26 cents to a $34.66 bbl settlement, off a two-month spot high of $35.17. May Brent crude oil futures on the IntercontinentalExchange gained 12 cents to $36.93 bbl, off a two-month spot high of $37.40. The Brent premium over WTI narrowed 14 cents to a $2.27 bbl settlement.

In products trade, NYMEX April ULSD futures settled 0.70 cent higher at $1.1065 gallon, off a two-month spot high of $1.1250. April RBOB futures were up 0.72 cent at $1.3107 gallon, paring gains after posting a session high of $1.3310, with the contract having posted a two-month spot high of $1.3315 on Tuesday.

On Wall Street, the three main stock indices continued to seesaw ahead of their 4:00 PM ET close while the dollar index eased off a one-month high after the release of a mixed economic report by the U.S. Federal Reserve.

The Fed's Beige Book described economic growth as remaining "modest" or "moderate" in six of the 12 districts, down from nine districts in their previous report.

This morning, ADP said labor market growth accelerated last month, as employers added 214,000 jobs in February that beat expectation for 190,000 new jobs. ADP data is considered an imperfect precursor to the Labor Department's monthly nonfarm payroll report, which will be released Friday. The Fed will consider these data points when deciding whether or not to raise interest rates at its next meeting later this month.

On supply, EIA reported that U.S. crude stockpiles soared 10.4 million bbl during the week-ended Feb. 26, surpassing an expected 2.0 million bbl build. The majority of the crude stock build, 8.7 million bbl, was in the U.S. Gulf Coast.

The crude build included an unexpected 1.2 million bbl surge to 66.3 million bbl in crude stocks at Cushing, Oklahoma, the delivery point for NYMEX WTI futures, with working capacity at Cushing now 90.8% full.

For products, EIA reported a 1.5 million bbl gasoline stock draw, surpassing a 1.0 million bbl draw the market expected. EIA also reported a 2.9 million bbl stock build for distillate fuels for the week instead of a 1.8 million bbl draw the market expected.

On the demand, EIA reported huge declines for gasoline and distillates, down 455,000 bpd and 340,000 bpd, respectively.

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