Oil Advancing in Morning Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures continued their advance at the start of regular trade Thursday, with West Texas Intermediate crossing over the $50 bbl mark for the first time in a month, building on Wednesday's rally after the Organization of the Petroleum Exporting Countries agreed to cut output for the first time in eight years.

The agreement would guarantee a 1.2 million bpd cut by limiting total production to 32.5 million bpd, effective next month. That's a bigger cut than what most analysts thought the cartel could manage. The group produced 33.64 million bpd in October.

Along with OPEC's cut, non-OPEC producers are expected to cut 600,000 bpd of their own output, with Russia expected to trim 300,000 bpd from its production and Azerbaijan willing to talk with OPEC about how much of their output they should shut-in.

The OPEC deal prompted massive trading on spot and long-dated futures, with WTI and Brent crude futures trading volumes for February and March sharply higher since that's when the announced output cut would begin to impact the physical oil market.

The producer group hopes the cuts will accelerate a drawdown of the crude stock overhang and rebalance the oil market over the next six months, with OPEC set to review the decision next May. And they are banking on strong demand from the United States to help in the market rebalancing.

However, U.S. oil shale drillers are likely to bring more crude to the market, analysts said, and they added that the success of the OPEC effort is not guaranteed since much of it depends on compliance with terms of the deal.

Barclays Capital, citing the U.S. Energy Information Administration's Petroleum Supply Monthly, said in a report issued this morning that U.S. petroleum demand rose 450,000 bpd in September year-over-year, while domestic production fell 170,000 bpd year-over-year, which may necessitate higher imports from overseas.

"Total crude oil imports hovered near multi-year highs, medium imports increased 310,000 bpd month-over-month and heavy crude oil imports decreased 260,000 bpd," Barclays said in the report that looked at the domestic market.

EIA also reported yesterday that U.S. crude oil stocks unexpectedly fell by 884,000 bbl during the week-ended Nov. 25. But products data were bearish, with distillate supplies up 5.0 million bbl and gasoline stocks increasing 2.1 million bbl.

In early trade, NYMEX January WTI crude futures jumped $1.37 to $50.81 bbl, off a better than five-week high of $51.05. February Brent crude oil futures on the ICE complex gained $1.47 to $53.31 bbl, off a seven-week spot high of $53.48. WTI and Brent rallied about 9% Wednesday.

NYMEX January ULSD futures rallied 4.76cts or 3% to $1.6239 gallon this morning, near a seven-week spot high of $1.6262. January RBOB futures spiked 4.65cts or 3.1% to $1.5290 gallon, off a four-week spot high of $1.5307. The products contracts gained 7.4% and 8.3%, respectively, Wednesday on the OPEC news.

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