CRANBURY, N.J. (DTN) -- West Texas Intermediate on the New York Mercantile Exchange settled over $50 per barrel (bbl) for the first time since July 2015 and Brent crude on the IntercontinentalExchange topped $51 bbl, rallying as sentiment shifts that the global oil market is narrowing an oversupply imbalance with demand and as a hike in interest rates in the United States would again be kicked down the road.
NYMEX ULSD futures rallied to a six-month high on the session, while the RBOB contract reversed gains to fractionally lower, testing support, while the contango at the front end of the forward curve widened.
Traders await weekly data due out this afternoon and Wednesday morning that is expected to show the third consecutive drawdown in commercial crude oil supply in the United States, with a 3.0 million bbl draw estimated for last week, while unplanned supply disruptions globally totaled 3.7 million barrels per day (bpd) in May, the Energy Information Administration reported Tuesday afternoon in their Short-term Energy Outlook.
Supply disruptions by countries that are part of the Organization of the Petroleum Exporting Countries accounted for 70.1% of the global outages, with Nigeria losing 800,000 bpd of production in May because of militant attacks on oil and natural gas infrastructure, up from 500,000 bpd in April and more than the 300,000 bpd averaged in 2015. EIA said Nigeria's crude oil production dropped to 1.4 million bpd in May, its lowest monthly average since the late 1980s, with the agency expecting the disruptions to remain "relatively high through 2017 compared with recent years."
At its peak, wildfires shut-in 1.0 million bpd in Canada's oil production, said EIA.
"Although the fires have subsided and projects are slowly restarting, it may take weeks for production to return to predisruption levels," said EIA, with the agency expecting disrupted oil supply in Canada to average 400,000 bpd in June.
The unplanned supply disruptions joined by declining U.S. crude production and strong demand in China, India and the U.S. for gasoline has prompted the market to envision a quicker tightening of the global supply-demand imbalance than just a few months ago.
Indeed, OPEC at their meeting June 2 said the market was moving through the rebalancing process. The EIA this afternoon projected supply would average 1.0 million bpd more than demand this year before narrowing to a 300,000 bpd average in 2017.
At settlement, NYMEX July WTI futures were up 67cts at $50.36 bbl, edging off a $50.53 bbl intra-session high, with ICE August Brent gaining 89 cents with a $51.44 bbl settlement and near a $51.53 daily high.
WTI futures were also boosted by weakness in the U.S. dollar after Labor Department's dismal May employment report raised concern over U.S. economic growth, prompting Federal Reserve Chair Janet Yellen to signal that there would not be an adjustment higher in the federal funds rate when central bank officials meet next week.
NYMEX July ULSD futures rallied 3.84 cents to a $1.5415 gallon settlement and near a $1.5435 gallon six-month high on the spot continuation chart, climbing with Brent crude and expectations inventory data would show a 500,000 bbl and eighth consecutive weekly drawdown in national inventory later today and Wednesday. ULSD futures are also boosted as traders liquidate length in RBOB futures and add long positions in the ULSD contract.
NYMEX July RBOB settled a fractional 0.16 cents lower at $1.5871 gallon after testing support at last week's $1.5761 low with a $1.5767 print today. Despite an expected 1.0 million bbl draw in gasoline inventory and strong demand, gasoline supply is 8.3% above year ago and 12.5% above the comparable five-year average.
High inventory moved the front end of the forward curve out of backwardation late last week, with the contango widening and the backwardation through year end narrowing.
Brian L. Milne can be reached at firstname.lastname@example.org
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