Oil Mixed in Early Trade

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange were mixed in early trade Thursday, with West Texas Intermediate and Brent crude on the IntercontinentalExchange both topping $50 bbl for the first time in 2016, as the market anticipates a rebalance in production and demand later this year.

Recent global crude supply disruptions highlighted by Canada and Nigeria joined by an ongoing decline in U.S. crude production, which fell for the 11th consecutive week through May 20 and to the lowest output rate since July 2014 have boosted expectations that new supply would be capped. Noncommercial participants expanded a net-long position in WTI futures to a 22-month high through May 17, the Commodity Futures Trading Commission shows in its most recent Commitment of Traders report.

Crude futures were also lent support from a sizeable 4.2 million bbl drawdown in U.S. commercial crude oil inventory during the week-ended May 20 reported Wednesday by the Energy Information Administration. Domestic crude stockpiles have been drawn down 6.3 million bbl so far in May and to their lowest point since early April.

At 9:00 AM ET, NYMEX July crude futures were up 42cts at $49.98 bbl, paring an advance to a $50.21 better than seven-month high on the spot continuation chart. ICE July Brent crude futures were 47cts higher at $50.21 bbl, edging off a $50.51 bbl nearly seven-month sot high.

NYMEX June RBOB futures were up 0.28cts at $1.6444 gallon, holding below Tuesday's $1.6664 better-than nine-month high on the spot continuation chart, with the July contract up 0.39cts at $1.6525 gallon.

The gasoline contracts have since reversed down, under pressure after an inventory build and a decline in implied demand during the week-ended May 20 were reported Wednesday by the EIA. Still, driving demand is expected to be strong during the Memorial Day weekend which begins today, with AAA forecasting road travel at an 11-year high.

Lower demand for out-of-season distillate fuels weighed on the ULSD contracts, with June ULSD down 0.75cts at $1.5052 gallon at 9:00 AM ET and the July contract 0.65cts lower at $1.5104 gallon.

June options for the RBOB and ULSD contract expire this afternoon.

WTI was also lent upside support by a weaker U.S. dollar, which fell to an eight-day low this morning from a two-month high earlier this week. The weakness in the greenback was accelerated after the U.S. Census Bureau this morning reported new orders for manufactured durable goods in April increased $7.7 billion or 3.4% to $235.9 billion, which follows an upwardly revised 1.9% gain in March. The surge in new orders were driven by the transportation sector, although weakness in business spending cast a pall over the data, with the U.S. dollar dropping in the minutes following the data's release.

Also this morning, the Department of Labor reported a 10,000 decline in initial unemployment claims for the week-ended May 21 to 278,000, although the four-week average increased 2,750 to 275,750. Initial jobless claims have held below 300,000 for 64 consecutive weeks, the department reports--the longest stretch since 1973.

Brian Milne can be reached at brian.milne@dtn.com


Brian Milne