Oil Higher on Strong Economic Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved slightly higher at the open this morning after the release of positive U.S. economic data and ahead of weekly U.S. oil supply data that's expected to show stock draws for crude oil and refined products.

The market also drew support from unplanned oil supply outages and improving sentiment. Investment bank Goldman Sachs shifted to a bullish market view, saying supply and demand fundamentals have rebalanced faster than previously thought.

At last look, NYMEX June West Texas Intermediate crude futures edged up 19cts to $47.91 bbl, easing off a seven-month spot high of $48.42. The IntercontinentalExchange July Brent contract rose 8cts to $48.89 bbl, paring an advance after double-topping this morning at a $49.47 6-1/2 month spot high. NYMEX June ULSD futures climbed 1.14cts to $1.4515 gallon after inside trade while June RBOB futures added 0.77cts to $1.6140 gallon.

On Wall Street, equities were lower while the U.S. dollar was little changed while U.S. economic data released this morning was supportive.

Housing starts in the United States increased 6.6% to a seasonally adjusted 1.17 million units in April after falling 9.4% in March, said the Commerce Department. U.S. industrial production rose 0.7% in April, more than double the forecast for a 0.3% increase and after a 0.6% drop in March.

The Bureau of Labor Statistics said U.S. consumer price index rose 0.4% on a seasonally adjusted basis in April, better than an expected 0.3% increase and the strongest gain since February 2013, which followed a 0.1% dip in March. Core inflation, excluding fuel and food costs, was up 0.2% after a 0.1% gain in March. Year-on-year inflation is up 1.1% while core inflation is up 2.1%, which is within the historical average.

Analysts said the U.S. Federal Reserve could take this as sign of normalizing inflation and decide to increase its benchmark federal funds rate as soon as June since the labor market is also nearing what the central bank views as full employment.

The complex continues to find support from crude supply disruptions in Canada, Nigeria, Libya, and Venezuela. New reports indicate the resumption of Canada's oil sands production has been slow since the fires continue to burn in some parts of the Alberta oil sands region and winds have turned the flames back to the north to again threaten residents of Fort McMurray. The wildfires have been burning since May 1, forcing evacuation of more than 80,000 people.

In Nigeria, militant attacks on oil platforms in the Niger Delta region have forced the shutdown of an estimated 600,000 bpd, reducing the country's output to a 20-year low of 1.65 million bpd. Libya's output has been cut by 50% to 300,000 bpd due to security problems while Venezuelan crude production has been reduced by 188,000 bpd so far this year due to power outages and underinvestment.

Goldman Sachs on Monday raised its 2016 WTI crude price target by $10 to $45 bbl, arguing that these supply outages have taken about 2.0 million bpd out of the market, offsetting supply increases from Iran and Iraq. Demand is also seen surging in key emerging markets such China, India and Russia.

Domestically, the American Petroleum Institute is scheduled to release its supply data for the week-ended May 13 at 4:30 PM ET. The Energy Information Administration releases its corresponding weekly data Wednesday morning, with traders focused on U.S. production which has consistently declined over the past several weeks.

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