Oil Futures Rally on Crude Stock Draw

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher Thursday afternoon after an Energy Information Administration report showing steep draws for U.S. commercial crude oil and gasoline inventories escalated a short-covering rally.

The EIA report's top headline bullets were bullish compared to market expectations and data reported Wednesday by the American Petroleum Institute, which reflected the impact of weather on domestic supply and demand, said analysts. The API report had already triggered an overnight futures advance.

"We saw Hurricane Hermine shut-in offshore production and imports were also down dramatically in the Gulf Coast," said Phil Flynn, an analyst at Price Futures in Chicago. "Gasoline demand is at a record high for this time of the year, and refinery runs are very strong. People were buying gasoline because they didn't want to be short in anticipation of the storm."

EIA report covering the week-ended Sept. 2 showed domestic crude oil stocks plunged 14.5 million barrels (bbl). Gasoline supplies were drawn down 4.2 million bbl versus a projected draw of 300,000 bbl for the week reviewed. Distillate fuel stocks increased 3.4 million bbl for the week profiled, more than three times the 1.0 million bbl increase the market anticipated.

On the demand side of the ledger, EIA reported refiner crude oil inputs rose 315,000 barrels per day (bpd) during the week-ended Sept. 2, while gasoline surged 84,000 bpd, but distillates demand fell 150,000 bpd.

NYMEX October West Texas Intermediate crude futures settled $2.12 or 4.7% higher at $47.62 bbl, edging off a $47.75 two-week high on the spot continuation chart.

November Brent futures contract on the IntercontinentalExchange jumped $2.01 or 4.2% to $49.99 bbl at settlement, off a $50.14 two-week spot high.

In products trade, NYMEX October ULSD futures rallied 5.57 cents or 3.9% to a $1.4822 gallon settlement, off a one-week spot high at $1.4870. NYMEX October RBOB futures rocketed 7.01 cents or 5.2% higher to a $1.4165 gallon settlement, off a $1.4227 one-week spot high.

Late Tuesday, API reported crude oil stocks down 12.1 million bbl, gasoline stocks falling 2.3 million bbl and distillate stocks rising 900,000 bbl.

Also, China said its crude imports fell 5.9% month-over-month in August while soaring 20% year-over-year to 7.72 million bpd, the highest pace for growth in imports since April that indicates strong demand in the world's second largest oil consuming nation after the United States, according to Barclays Capital.

Adding to the oil futures rally, EIA's September Short-term Energy Outlook issued on Wednesday was bullish on global demand growth, with traders also hoping for a deal by the Organization of Petroleum Exporting Countries to stabilize oil prices.

In currency trade, the dollar fell to a two-week low versus a basket of six rival currencies before strengthening on the day, with a weaker greenback considered bullish for oil prices.

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