Oil Settles Sharply Higher

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher across the board this afternoon following a rally prompted by data from the Energy Information Administration showing a surprise stock draw for U.S. crude oil, with supplies of refined products drawn down as demand increased during the week-ended May 6.

This was the first weekly crude stock draw since March, adding to concerns following production outages in Canada, Nigeria and Libya that have supported the oil futures complex since last week. The EIA data were also more bullish than American Petroleum Institute's data.

"The data were less bearish and the market has been bullish since February, so it's hard to short this market," said analyst Kyle Cooper at IAF Advisors. "Demand is starting to pick up." Others agreed.

"There are concerns about refinery runs and the risk to supply got the market moving up," said analyst Phil Flynn at Price Futures. "The stock draws were very supportive and gasoline demand is very strong."

Flynn cited an incident this morning whereby a worker at ExxonMobil's 340,000 bpd Beaumont, Texas, refinery. Details of the incident aren't clear yet, but Flynn said the gasoline production at the plant may have been disrupted. The company confirmed the incident but gave no details.

At settlement, NYMEX June West Texas Intermediate crude futures were up $1.57 or 3.5% at $46.23 bb, off a one-week spot high of $46.36. July Brent crude futures on the IntercontinentalExchange were $2.02 or 4.6% higher at $47.60 bbl, off a better than one-week spot high of $47.75.

In products trade, NYMEX June ULSD futures jumped 5.92cts or 4.4% to $1.3967 gallon, off a better than one-week spot high of $1.3999. The NYMEX June RBOB futures contract spiked 9.58cts or 6.4% to a $1.5815 gallon settlement, near a one-week spot high of $1.5850.

On Wall Street, equities were heading for lower close, with the Dow Jones Industrial Average down 200 points on risk-off trade, while the dollar fell by 0.52% this afternoon, with a weaker dollar bullish for the oil complex.

But the main focus was on supply and demand fundamentals. The EIA reported crude oil inventories slumped 3.4 million bbl to 540.0 million bbl during the week-ended May 6. Analysts surveyed by Schneider Electric called for a build of 1.0 million bbl while API on Tuesday reported a 3.4 million bbl crude oil stock build. U.S crude production also fell 23,000 to 8.802 million bpd for the week.

The EIA also reported total motor gasoline inventories dropped 1.2 million bbl to 240.6 million bbl last week versus an expected 1.7 million bbl draw down while API reported a 271,000 build for the fuel, as refinery runs fell 0.6% to 89.1% of nationwide operable capacity.

The agency also showed distillate fuel inventories declined 1.6 million bbl to 155.3 million bbl last week while the market expected a drawdown of 1.7 million bbl and API reported a draw of 1.4 million bbl.

On demand side of the ledger, refinery crude inputs rose 193,000 bpd for the week and 5% year-over-year while implied gasoline demand surged 156,000 bpd and implied distillate demand climbed 68,000 bpd for the week but 11.3% lower than a year earlier. Total products supplied over the last four-week period, a proxy for demand, averaged about 20.1 million bpd, up 3.5% from the same period last year.

On Tuesday, EIA's Short-term Energy Outlook report issued Tuesday sharply raised its global oil demand growth forecast for 2016 and 2017 by 300,000 bpd and 200,000 bpd, respectively, versus April levels.

On the Canadian wildfire that disrupted about 1.1 million bpd of oil sands production since last week, reports indicate there was little damage on oil facilities and the affected oil companies are working to resume operation.

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

(BAS)