Oil Settles Higher Tuesday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher this afternoon ahead of weekly inventory reports that are expected to show draws in petroleum stocks in the United States for the week-ended May 20.

A widening labor strike in France threatening to cause fuel supply shortages and technical support added to the futures gains, but a stronger dollar and the impending restart of Canadian oil sands output limited the upside for the oil complex.

NYMEX July WTI crude futures rose 54cts to $48.62 bbl, the highest settlement since Oct. 9, and off a four-day high of $48.93.July Brent crude contract on the IntercontinentalExchange added 26cts to $48.61 bbl settlement.

In products trade, NYMEX June ULSD futures advanced 1.12cts to $1.4887 gallon after paring gains from a $1.5054 four-day high. June RBOB futures edged up 0.88cts to $1.6544 gallon, off a fresh nine-month high of $1.6654.

On Wall Street, equities advanced on risk-on trade while the dollar rallied to a near two-month high.

The dollar strengthened on expectations of a hike in interest rates as soon as next month after recent hawkish comments by several regional Federal Reserve Bank heads that confirmed the economy is doing much better than generally appreciated and could sustain higher rates.

An index that tracks Fed expectations showed up to a third of investors now expects the central bank to raise rates next month. The Federal Open Market Committee is set to meet on June 15 to decide whether to raise rates.

The French oil worker strike that shut down three refineries on Monday has now expanded to eight refineries owned by ExxonMobil and Total, threatening fuel shortages across the country and potentially throughout Western Europe. The workers are protesting President Francois Holland's labor reforms.

Domestically, an early survey of analysts shows the market expects a crude stock draws of 3.3 million for the week-ended May 20, with gasoline demand seen rising in front of Memorial holiday weekend, the traditional start of the summer peak driving season. The survey also forecasts a gasoline stock draw of 1.3 million bbl and distillate stock draw of 2 million bbl for the week profiled.

The American Petroleum Institute is set to release its weekly oil data at 4:30 PM ET, while the US Energy Information Administration will release its data at 10:30 AM ET Wednesday.

Meantime, wildfires in the Alberta oil sands aren't yet contained completely but all mandatory evacuation orders were lifted today, allowing Suncor Energy Inc., Syncrude Ltd., ConocoPhillips and Royal Dutch Shell Group to being the process of restarting their operations near Fort McMurray. The companies plan to gradually restart production of 1 million bpd that was disrupted when the wildfires started on May 1.

On June 2, the Organization of Petroleum Exporting Countries will hold its biannual summit in Vienna to discuss current market conditions.

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