Oil Finishes the Day Mixed

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled mixed with an upside bias this afternoon as an upward revision of U.S. economic growth inflated the outlook for oil demand, offsetting last week's build in domestic crude oil supply.

Oil futures softened overnight through premarket trade under pressure from an unexpected crude stock build reported by the Energy Information Administration Wednesday, but the West Texas Intermediate and ULSD contracts reversed higher in morning trade after the Commerce Department said the U.S. economy grew at faster pace than expected in the third quarter.

The agency said gross domestic product grew at a 3.5% annualized rate in the third quarter after reporting a 3.2% growth rate a month prior, making it the strongest quarterly growth rate since the third quarter 2014, while following the second quarter's anemic 1.4% growth rate.

The quicker-than-expected expansion rate for the U.S. economy boosted optimism for oil demand. The GDP data followed day prior's EIA release that reported strong demand for oil products in mid-December.

In its report for the week-ended Dec. 16, the EIA showed demand surged 395,000 bpd for gasoline, 519,000 bpd for distillate fuels and refinery crude inputs, a gauge for crude oil consumption, climbed 184,000 bpd.

"The GDP wasn't a blockbuster but it shows an improvement and demand is getting better," said analyst Phil Flynn at Price Futures in Chicago.

The complex also continued to generate support from the prospect of oil supply falling next year pursuant to recent deals. The Organization of Petroleum Exporting Countries agreed Nov. 30 to scale back production by 1.2 million bpd to 32.5 million bpd from January through June 2017 that was joined by a commitment from 11 non-OPEC producing nations on Dec. 10 to ratchet down their own output by 558,000 bpd.

Since then, key signatories to the deal have sought to convince the market that they are serious about implementing the accords. Today, Iraqi oil minister, Jabbar al-Luaibi, said Baghdad was committed to the OPEC pact, in which Iraq pledged to cut its oil output by 210,000 bpd. Baghdad has told customers to expect less supply next year.

"The good news we got today is that the Kurds who control northern oilfields in Iraq are on board with the production cuts," added Flynn.

Saudi Arabia, Kuwait and non-OPEC Russia have made similar overtures. Saudi Arabia said last week that it intends to cut even deeper than the 486,000 bpd it agreed to at the OPEC meeting and Russia has committed to slashing 300,000 bpd of its supply.

"The OPEC agreement turned the market around to positive," said Tom Bentz, vice president for energy derivatives at ABN AMRO. "Since then, the market has become stabilized with crude hovering around $52 bbl."

However, Libya, an OPEC member who was exempted from the supply deal, said it hopes to raise its output by 270,000 bpd soon after recently doubling its oil exports to 600,000 bpd.

Libya's output of 870,000 bpd is well below its capacity of 1.2 million bpd last achieved before a civil war in 2011 when Muammar Gaddafi was killed and the country plunged into a state of continuous chaos.

The North African nation is now restarting two oil pipelines that would draw oil from the recently reopened Sahara and el Feel fields in the western part of the country. The increase in Libyan oil supply capped the upside for oil futures.

At settlement, NYMEX February West Texas Intermediate crude futures were 46cts higher at $52.95 bbl. ICE February Brent crude futures gained 59cts to $55.05 bbl. NYMEX January ULSD futures rallied 2.07cts to $1.6608 gallon, boosted by increased heating demand. January RBOB futures eased 0.15cts to a $1.6040 gallon settlement.

On Friday, the market will focus on the weekly oil rigs report from oil services firm Baker Hughes, Inc., with the market closed on Monday (12/26) for the Christmas holiday.

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