Oil Futures Continue Rally

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled sharply higher Tuesday afternoon on growing bullish sentiment that the global oil market will move closer to a supply-demand balance in 2017 after U.S. consumer confidence reached a 15-year high in December that is seen underpinning strong gasoline demand in the United States joined by production cuts from the Organization of the Petroleum Exporting Countries and 11 non-OPEC producing countries.

"Although we had light volume today, there is improved optimism about the economy and a better chance that OPEC production cuts will hold," said senior analyst Phil Flynn at Price Futures. "We had data showing strong consumer confidence, which raises the prospect for demand. We have already seen gasoline demand at record high and heating oil demand is also up, so there's a narrative that demand for oil will improve."

The consumer confidence figure, with the Conference Board today reporting a 4.3 point increase in the index to 113.7 in December, joined an upward revision in U.S. gross domestic product for the third quarter reported Dec. 22 to a 3.5% annualized growth rate -- the highest since the third quarter 2014, to underpin bullish sentiment.

NYMEX January ULSD futures were 3.66 cents higher at a $1.6994 gallon settlement after trading at a $1.7109 1-1/2 year high on the spot continuation chart. January RBOB futures rallied 2.66 cents to a $1.6528 gallon settlement, trimming an advance to a 1-1/2 year high on the spot continuation chart of $1.6738.

NYMEX February West Texas Intermediate crude oil futures settled 88 cents higher at $53.90 per barrel (bbl), off a two-week spot high of $54.10. ICE February Brent crude futures rose 93 cents to a $56.09 bbl settlement, off a two-week high of $56.27.

The market will closely watch oil production rates in 2017 after OPEC and 11 non-OPEC nations agreed on Nov. 30 and Dec. 10, respectively, to reduce output by a combined 1.758 million barrels per day (bpd) beginning Jan. 1.

While a sizeable reduction, a number of analysts have noted OPEC's poor compliance with past quota agreements, with this concern prompting some signees to the agreement to issue statements reassuring the market they would follow through on the pacts.

Analysts have also questioned the affect the production cuts would have on oil prices considering other producers would simply increase their output when prices moved higher as seen in the United States, where production has reached a seven-month high at 8.796 million bpd in December, data from the Energy Information Administration shows.

Weekly oil supply data is delayed a day by Monday's holiday in observance of Christmas, with the American Petroleum Institute scheduled to issue its data at 4:30 PM ET Wednesday and the EIA their statistics at 11:00 AM ET Thursday.

Flynn expects the data to show across the board stock draws of 3.0 million bbl for crude and refined products and a drop in refinery runs occurred during the week-ended Dec. 23.

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