Oil Futures Higher on Optimism, USD

Oil Futures Higher on Optimism, USD

NEW YORK (DTN) -- New York Mercantile Exchange oil futures rose Tuesday morning on a weakening dollar and the prospect of rising oil demand that would help narrow the supply-demand imbalance in the global oil market.

At 9:00 AM ET, NYMEX June West Texas Intermediate crude oil futures increased 73cts to $43.37 bbl while June Brent futures on the IntercontinentalExchange advanced 71cts to $45.19 bbl. NYMEX May ULSD futures rose 2.30cts to $1.3133 gallon while NYMEX May RBOB futures gained 2.88cts to $1.5419 gallon.

On Wall Street, equities opened higher while the dollar moved lower for the second straight day. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.28% this morning. A weakening dollar is bullish for oil futures since oil trades in dollar denominations internationally.

The dollar's weakness comes ahead of policy meetings by the U.S. Federal Reserve today and Wednesday and the Bank of Japan on Thursday. The Fed is seen leaving interest rates unchanged while the BOJ is expected to announce yet another batch of stimulus measures. The European Central Bank last week kept its rates unchanged.

Bullish market sentiment offset fresh weak U.S. economic data, with March U.S. durable goods orders up a less-than-expected 0.8% and February Case-Shiller home prices up a less-than-expected 5.4%.

Since mid-February, the oil futures complex has rallied almost entirely on speculative trading, with bullish investors betting the market will rebalance later this year or early next year as demand picks up and U.S. production falls.

However, while U.S. crude production has declined in recent weeks, oil supply by members of the Organization of Petroleum Exporting Countries continues to rise after Saudi Arabia on April 17 scuttled a plan to freeze output at January levels.

Kuwaiti oil production has rebounded quickly from last week's strike to 3.0 million bpd and a further increase to 3.15 million bpd in June is being planned, according to reports. There was talk Monday that Iraqi oil exports may reach a new record in April, while Saudi Arabia is boosting capacity at its Shaybah oil field by 250,000 bpd.

A senior Iraqi oil official told Platts this morning that they are targeting a nearly 350,000 bpd rise in crude production to 4.8 million bpd by the end of this year, up from around 4.458 million bpd in February.

Saudi Arabian leaders also on Monday unveiled an unusually ambitious plan that would ensure they could survive without oil as the mainstay of their economy within four years. The Saudi plan aims to reduce the kingdom's dependence on oil revenues, which last year accounted for 70% of their income.

Saudi, which has 16% of the world's oil reserves, is the largest oil export and its crude production has risen from 9.73 million bpd in 2014 to about 10.0 million bpd in 2015, according to the Energy Information Administration.

Domestically, the market expects crude stocks to have increased 2.0 million bbl last week with gasoline inventories moving 500,000 bbl lower and for a 750,000 bbl drawdown in middle distillate stockpiles to have occurred. A Monday report by Genscape, a private information provider, showed a 1.5 million bbl crude oil stock build at Cushing, Oklahoma, the delivery point for NYMEX WTI crude oil futures.

The American Petroleum Institute is scheduled to release its weekly oil data at 4:30 PM ET and EIA is due to issue its weekly data at 10:30 AM ET Wednesday.